Home    |   About Us
An initiative by SARTHI CAPITAL ADVISORS PVT. LTD
Know SME Listing
How to List
FAQ's
SME Knowledge Corner
Sarthi's Research Coverage
News & Articles
Know your Eligibility
Listing Fees
In Media
Quick Links
Ask the Expert
 
Welcome!!! You are Visitor No.
SME LISTING
 
Benefits of SME Listing
 
Key Benefits
 
Funding Convenience
•  Access to capital and financing opportunities :

Going public provides SMEs with equity financing opportunities to grow their business from operations to expansion to inorganic acquisitions. Access to equity financing lowers the debt burden leading to lower financing costs and healthier balance sheets. The continuing requirement for adhering to stock market rules for the issuers lowers the ongoing information and monitoring costs for the banks.

•  M&A currency :

Listed shares act as a currency, esp. for inorganic business acquisition transactions. Listed shares can be utilized as an acquisition currency, as an alternative to cash consideration, to acquire existing businesses / assets. Using shares as a currency can be a tax efficient and cost effective vehicle to finance an acquisition transaction.

•  Premium Valuation :

Valuation of a company is determined by various factors, one of which is class of company – listed or closely-held. The value discounting by investors of an unlisted entity can be avoided, if the shares are listed on a nation-wide exchange platform including SME Exchange.

•  Efficient Risk Distribution for Investors :

It is expected that the development of capital markets helps distribute risk efficiently by transfer of risk to those best able to bear it. Capital is a precious resource. When one can afford, he can invest it; when one needs it back, he can exit. This in-built mechanism of risk-transfer, in turn, lends to sustainability to market forces. Thus capital markets for SMEs are also expected to ensure that capital flows to its best uses and even the riskier activities with higher payoffs could be funded.

•  Entry & Exit Platforms for PE / Other Investors :

The presence of a market-driven transparent trading platform provides with a ready and easy entry and exit for strategic investors. Listing not only offers the investors flexibility for entry and exit, but also the confidence required for any such transaction.

Tax Benefits

Income- tax Act offers immense benefits to companies if their shares are listed on recognized stock exchanges including SME Exchange. Tax benefits, often, turns out to be one of prominent factors for listing :

•  No Long-term Capital Gains Tax

Transfer of unlisted shares attracts long term capital gains tax of 20% and short term capital gains of up to 30% (depending upon an assessee's income slab and applicable tax rate). Whereas in case of listed shares, tax on long term capital gains is nil and short term capital gains is 15%, provided the transaction has been subjected to securities transaction tax (STT). This preferential tax treatment on transfer of listed shares is also available to shares listed on SME Exchange. Listing on SME Exchange is a valid tax-planning tool and could, thus, lead to enormous tax saving for SME entrepreneurs / investors.

 • No tax on fresh equity infusion in the company

Recently the Finance Act, 2012 imposed a tax liability on fresh issuance of equity shares by an unlisted company to investors other than "Registered Venture Fund", if the issuance is made at a value more than the fair value. This could make SMEs subject to heavy tax outgo, since they often go for fund raising through equity issuance to investors. Such a tax liability, however, does not attract if the shares of the company are listed on recognize stock exchanges, including SME Exchange.

•  No tax on distressed business purchase

Income-tax Act levies a tax inter alia on the buyer of shares of an unlisted company, if the transaction is conducted at a value less than its book value. Hence acquisition of distressed assets could attract heavy tax. Such a tax liability, however, does not attract if the shares of the company are listed on recognize stock exchanges, including SME Exchange.

•  Efficient Risk Distribution for Investors :

It is expected that the development of capital markets helps distribute risk efficiently by transfer of risk to those best able to bear it. Capital is a precious resource. When one can afford, he can invest it; when one needs it back, he can exit. This in-built mechanism of risk-transfer, in turn, lends to sustainability to market forces. Thus capital markets for SMEs are also expected to ensure that capital flows to its best uses and even the riskier activities with higher payoffs could be funded.

•  Entry & Exit Platforms for PE / Other Investors :

The presence of a market-driven transparent trading platform provides with a ready and easy entry and exit for strategic investors. Listing not only offers the investors flexibility for entry and exit, but also the confidence required for any such transaction.

Other Benefits
•  Visibility – Profile Building

Going for a public issue is most likely to enhance the company's visibility. Greater public awareness gained through media coverage, and research coverage by sector investment analysts provide the SMEs with greater visibility and help brand building which otherwise may remain a dream especially for SMEs.

•  Unlocking / Benchmarking Value

The fair value of an unlisted company may not be benchmarked appropriately, in absence of a market-driven mechanism. The companies listed on a stock exchange are traded and the market forces are expected to establish their fair value or near-fair value. This leads to unlocking or benchmarking of fair value of the SME businesses.

•  Incentive Mechanism for Employees

The employees of an SME can participate in the ownership and benefit from being a shareholder. This can serve to ensure stronger employee commitment to the company's performance and success. ESOPs and any other share-based compensation plan of listed company have an immediate and tangible value to employees. This, in turn, serves as a talent retention tool.

•  Benefit for Companies in Supply Chain

The companies in supply chain in the forward or backward integration may take strategic stake as part of growth & expansion. Also, companies in the same business line planning to expand the operations may take a stake in listed SMEs.

•  Governance – Internal Systems

Though the requirements for a company listed on SME Exchange are not as stringent as that for Main Board listed companies, nevertheless SME listing ensures that the company has drawn up the internal control systems and set up minimum required framework of corporate governance. This, in turn, lends sustainability to the business.