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What is a listed company? Conditions to become a listed company? What are the pros and cons of listed companies versus unlisted companies?

Currently, stocks and shares are a form of investment with a high success rate that many businesses or individuals choose. However, to invest in a reputable company, you should choose a listed company or an unlisted company. There have been many customers who had to invest in an unlisted company. Those shares will be disadvantaged and sometimes will be lost, contrary to the law. Therefore, for peace of mind when investing, businesses and individuals need to carefully research and choose only listed companies. So what is a listed company? Pros Disadvantages of listed companies with unlisted companies?

Legal grounds

  • Law on Securities 2019 (effective from January 1, 2021).

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1. What is a listed company?

A listed company is a public company in which shares are allowed to be traded on stock exchanges. This is considered the highest form of development of a company. Because after becoming a listed company, it will be subject to strict management from state agencies.

At the same time, the company must transparently disclose information and principles of issuing securities to raise capital. Therefore, the motivation to become a listed company is the ability to raise capital on the stock market.

Pursuant to Clause 24, Article 4 of the Securities Law 2019 stipulates: “Listed stock means putting securities eligible for listing into trading on the trading system for listed securities.”

In addition, the Securities Law 2019 stipulates a number of relevant definitions as follows:

Sign up for trading means putting securities into trading on the trading system for unlisted securities.

Stock trading system including the trading system for listed securities and the trading system for unlisted securities, operated by the Stock Exchange of Vietnam and a subsidiary of the Stock Exchange of Vietnam (hereinafter referred to as the Stock Exchange). Vietnam Securities Exchange and its subsidiaries) organized and operated.

Stock exchange market is a place or form of information exchange to collect orders to buy, sell and trade securities.

see more: Conditions and how to participate in listing on the stock exchange

Securities trading is the performance of securities brokerage, securities trading, securities underwriting, securities investment consulting, stock investment fund managementmanage securities investment portfolios and provide securities services in accordance with Article 86 of this Law.

Stockbroker Acting as an intermediary to buy and sell securities for customers.

Securities trading is the securities company buying and selling securities for itself.

Underwriting securities means a commitment to the issuer to purchase part or all of the securities of the issuer in order to resell or purchase the remaining securities that have not been fully distributed, or to make every effort to distribute the required number of securities. issuer’s issue.

adviceeh?n securities investment is providing customers with analytical results, analysis reports and making recommendations related to buying, selling and holding securities.

Securities registration is the recording of information about the issuer, the securities of the issuer and the owner of the securities.

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Saveidea stock is the receipt of deposit, preservation and transfer of securities to customers, helping customers to exercise their rights related to depository securities.

Stock portfolio management is the management activity under entrustment of each investor in the purchase, sale and holding of securities and other assets of the investor.

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Securities investment fund management is the management activity in buying, selling and holding securities and other assets of a securities investment fund.

2. Conditions to become a listed company:

Pursuant to Clause 1, Article 15 of the Law on Securities in 2019, the conditions for the initial public offering of shares of a joint-stock company include:

– The amount of charter capital contributed at the time of registration of the offering is from VND 30 billion or more calculated according to the value recorded in the accounting books;

– Business activities of 02 consecutive years before the year of registration of the offering must be profitable and at the same time have no accumulated losses by the year of registration of the offering;

– Having a plan for issuance and a plan for using capital obtained from the offering of shares approved by the General Meeting of Shareholders;

– A minimum of 15% of the voting shares of the issuer must be sold to at least 100 investors who are not major shareholders; in case the charter capital of the issuer is VND 1,000 billion or more, the minimum ratio is 10% of the voting shares of the issuer;

– Major shareholders before the time of initial public offering of shares of the issuer must commit together to hold at least 20% of the charter capital of the issuer for at least 01 year from the closing date. the offering;

– The issuer is not being examined for penal liability or has been convicted of one of the crimes of infringing upon economic management order but has not yet had its criminal record cleared;

see more: Conditions for listing securities at the Hanoi Stock Exchange

– There is a securities company consulting the application file for registration of a public offering of shares, unless the issuer is a securities company;

– Having a commitment and having to list or register for trading of shares on the securities trading system after the end of the offering;

– The issuer must open an escrow account to receive money to buy shares of the offering.

3. Advantages of listed companies:

  • First, improve liquidity: Listed shares are often easy to buy, resell or in other words, easy to trade directly on the market. Therefore, investors do not have to worry about the difficulty of selling stocks to recover capital like other types of investment assets (gold, real estate, …). Therefore, the liquidity of these stocks is also considered higher than that of unlisted stocks.
  • Second, better growth potential: Although not every company’s stock can do this after a period of listing on the stock market. But most companies have a good value foundation (both in terms of tangible value and intangible value), in the long run, the stock price will increase compared to the price at the time before listing.
  • Third, the level of prestige – safety is enhanced: In order to be listed on the stock exchange, companies must ensure that they meet the requirements in terms of finance, production and business efficiency, organizational structure, etc. Therefore, investing in shares of listed companies will limit risks and increase profit opportunities because the business activities of these companies are quite stable and on the growth momentum.
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4. Disadvantages of listed companies:

In order to become a listed company, businesses must meet the conditions of the securities law. Therefore, this proves that when listed, companies will have many advantages over unlisted companies as follows:

  • Not to be restricted by the procedures for applying for an investment license when there are foreign shareholders holding shares

According to the provisions of the Investment Law 2014, for a company when a foreign investor holds at least 51% of the charter capital, that company will have to carry out procedures to apply for an investment registration certificate. investment, i.e. investment license. If that company invests in establishing economic organizations; capital contribution, call to buy shares, contributed capital of economic organizations and invest under BCC contract.

However, in the case of a listed company, it will be difficult to determine the percentage of ownership of a specific foreign individual at a time so that it can be known if the company when making an investment must apply for an investment license. or not. This can be said to be beyond the control of that company. Therefore, in fact, no listed company has yet applied for an investment license in accordance with the investment law. This is an advantage that listed companies have.

· Create liquidity for assets through asset securitization

Securitization of assets is a technique that many businesses and real estate companies use to create liquidity for assets. Businesses investing in real estate need a huge amount of capital, be it credit capital or capital from the stock market.

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For businesses that do not want to increase their debt on the books or cannot borrow more, it is even difficult to raise capital from issuing shares. Due to measurement, the plan to securitize existing assets to raise capital.

Accordingly, the enterprise will sell this asset to the companies in the system and these SPVs will use this property to secure loans at the bank or issue securities to raise capital to repay the debt. enterprise. At that time, the business will record revenue from the sale of assets and at the same time, banks or other creditors will have additional income from loan interest.

However, to be able to raise capital, SPVs must be reputable or large enough to issue securities. These SPVs are companies listed on the stock exchange. And this is the advantage of raising capital by issuing stock and bond programs to the market.

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· Increase assets and ownership ratio for shareholders through back door listing service

To raise capital, the founding shareholders decide to IPO and list the company’s shares on the stock exchange. At this time, it means that they have to share control of the company with new shareholders, especially strategic shareholders and large shareholders holding investment funds.

However, major shareholders at this time will be bound to prevent dilution of shares. Therefore, the company will be restricted from issuing more individual shares or convertible bonds, warranted bonds, this problem will make founding shareholders relatively uncomfortable.

To overcome the above disadvantages, the founding shareholders will now establish a new company and separate a business segment from a listed company to a newly established company. This new company will develop and have a certain market share, even being able to compete with the listed company.

At that time, the founding shareholders will convince the general meeting of shareholders of the listed company to merge with the other new company through the issuance of shares for swap. Accordingly, the shares of the founding shareholders in the new company will be converted into shares of the listed company.

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This case will help the founding shareholders increase their assets and ownership ratio in the listed company. At the same time, when changing to listed shares, it will increase liquidity for assets.

· Promote the process of sustainable corporate governance

When a company has shares listed on the stock exchange, it means that the company will have to comply with corporate governance standards as prescribed by the enterprise law and the securities law. These standards are developed with international standards on corporate governance.

In fact, when unlisted companies arise, when administrative procedures or banking procedures arise, new companies will be required to provide legal documents on internal management. It is likely that these new businesses will prepare procedures in the form of a countermeasure. This will be detrimental and not legally guaranteed in the event of litigation.

However, if the company has been listed, the company must organize and operate the corporate governance system methodically and be subject to the supervision of the market or from shareholders and regulatory agencies. country. Listed companies must disclose information in accordance with the provisions of the securities law on corporate governance, similar to fully complying with the order and procedures for holding the general meeting of shareholders, etc.

In addition, the company’s shares will be registered for custody at the Securities Depository Center, which proves to be much more certain of recording ownership for shareholders than unlisted companies. part. Thus, we can see that, with strict compliance with regulations on corporate governance as prescribed by law, the management system of listed companies will be more sustainable and less risky.

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