Shares are bought and sold through stock exchanges.
Each keeps an index of the value of shares on that exchange; In London, for example, the FTSE All Share (Financial Times Stock Exchange) index is a measure of all of the shares listed in London.
In New York, it is the Dow Jones index and in Hong Kong, it is the Hang Seng index.
Role in Corporate Governance
Listing rules are sometimes imposed on listed companies often concerning governance arrangements not covered elsewhere by company law.
In the UK, for example, it is a stock exchange requirement that listed companies comply with the Combined Code on Corporate Governance
Procedure for obtaining a listing on an international stock exchange
Normally, obtaining a listing consists of three steps:
In the UK a firm seeking listing must register as a public limited company.
This entails a change in its memorandum and articles agreed by the existing members at a special meeting of the company.
The company must then meet the regulatory requirements of the Listing Agency which, in the UK, is part of the Financial Services Authority (FSA).
These requirements impose a minimum size restriction on the company and other conditions concerning length of time trading.
Once these requirements are satisfied the company is then placed on an official list and is allowed to make a public offering of its shares.
Once the company is on the official list it must then seek the approval of the Stock Exchange for its shares to be traded.
In principal it is open to any company to seek a listing on any exchange where shares are traded.
The London Exchange imposes strict requirements and invariably the applicant company will need the services of a sponsoring firm that specialises in this type of work.
The advantages of seeking a public listing
It opens the capital market to the firm
It offers the company access to equity capital from both institutional and private investors and the sums that can be raised are usually much greater than can be obtained through private equity sources.
Enhances its credibility as investors and the general public are aware that by doing so it has opened itself to a much higher degree of public scrutiny than is the case for a firm that is privately financed.
The disadvantages of seeking a public listing
A distributed shareholding does place the firm in the market for corporate control increasing the likelihood that the firm will be subject to a takeover bid.
There is also a much more public level of scrutiny with a range of disclosure requirements.
Financial accounts must be prepared in accordance with IFRS or FASB and with the relevant GAAP as well as the Companies Acts.
Under the rules of the London Stock Exchange companies must also comply with the governance requirements of the Combined Code