In order to raise a great deal of money faster, companies try their luck in listing. They must apply and meet stock exchange requirements. So, delisting is pretty much a business bad luck. Although delisting could be the best way a company could take, there is also reason on regulatory violation that leads to bankcruptcy.
First of all, they must apply and issue shares of their stock for trading in a stock exchange. When a company enters the list, it becomes a public company. Investors would buy and sell the shares, raise or fall in value based on the demand. So, each share represents ownership of the company.
Basically, listing gives a set of benefits for companies to leverage and expand. Listing allows the company to borrow the money and pay interest. They can control provit for their investment. The companies become known in the public. Plus, raising the money thorugh sales of shares can ease them. Going public means giving the company visibility to investors and financial media’s attentions.
However, just like what Spiderman’s Uncle Ben said “with great power comes great responsibility”, there are requirements for companies to get listing approval. In the U.S. for instance, companies desired to enter listings must meet the criteria obliged by the Securities and Exchange Commission (SEC). For trading their exchange they also must get accepted by the New York Stock Exchange.
Every share requires typical criteria such as including minimum levels of cash flow and company assets. Once a company becomes a public company, it must adhere to regulation by the Securities and Exchange Commission. On this occasion, the listed company has obligations to report its annual financing.
But, what will happen if the company does not meet the standard?
The company is going to be delisted. Although delisting could be a new opportunity for the company, if it fails to scale their business after delisting, the company can go bankrupt. When a company does not meet the standard of the stock exchange, they will be delisted. Sometimes, it is because the company is failing and the stock drops below $1 a share.