Here we tell you everything you need to know about listed companies, such as what they are and which requirements listed companies must meet.
What is a listed company?
A listed company is a company whose shares are listed and traded on a stock exchange, such as Nasdaq. This means the shares are available to the public, and anyone with a share account can buy and sell the company's shares through banks and online platforms during the exchange's opening hours. Listed companies must follow specific rules on transparency and financial reporting, which give investors access to important information about the company's business and results.
Listed companies must meet the requirements we describe below.
Requirements before listing
For a company to be listed on a stock exchange, it must meet some or all of the requirements we describe below. Which requirements must be met, and how they are framed, depends on which stock exchange the company wants to be listed on.
- The company must have equity that meets the minimum requirements of the exchange or marketplace in question.
- The company often needs to meet certain requirements on profitability and revenue, but for some fast-growing companies the profitability requirements can be flexible.
- The company should have an established business and be able to show 2–3 years of financial history.
- The board and management must have the experience and expertise to run a listed company. The company must also have procedures in place to ensure correct and clear disclosure to the market.
- The company must present a prospectus containing detailed information about its business idea, finances and operations. Smaller companies can sometimes present a company description, which is a simplified version of the prospectus.
- The company must go through a due diligence process that examines legal, financial and tax aspects, among others. This review is often carried out by external advisers and summarised in a report.
- The company must meet the free float requirement, which means that a certain percentage of the shares (usually 10–25%) must be owned by the public.
Requirements after listing
Listed companies must meet a number of important requirements to maintain market confidence and regulatory compliance:
- The company must report its financials regularly, including quarterly reports and an annual report containing, among other things, an income statement, a balance sheet, a directors' report and, where applicable, an auditor's report.
- The company is obliged to disclose promptly any event that may affect the share price, for example major acquisitions, changes in management or new customer contracts. This disclosure obligation is governed by the EU Market Abuse Regulation (MAR).
- The company must have rules and procedures to prevent insider trading, including keeping insider lists and introducing closed periods for people in positions of insight.
- The exchange monitors listed companies to ensure regulatory compliance. If the rules are broken, the company can face sanctions such as fines, warnings or, in serious cases, delisting from the exchange.
Advantages of being a listed company
Once a company is listed on a stock exchange, it gains the advantages below.
It becomes easier to raise new capital
Many companies choose to list in order to make raising capital easier. Through new share issues the company can issue more shares and thereby raise capital for growth and investment.
It becomes easier to trade the company's shares
A listing on a major exchange makes the share more accessible to investors and increases liquidity, which makes changes of ownership easier and stabilises the share price. A wider shareholder base can also improve brand awareness.
Listed shares can be held in investment savings accounts
Only listed shares can be held in an ISK (investment savings account, a Swedish account type), which attracts more investors who benefit from the ISK's tax advantages.
The company gets a seal of quality
A listing means the company meets strict requirements on transparency and financial reporting, which can improve the trust of the public and investors.
It becomes easier to get bank loans
The transparency requirements for listed companies make it easier for banks to analyse the company's financial health, which can make it easier for the company to borrow. However, the company's finances and creditworthiness are still decisive.
The company can become more attractive to employees
Listed companies can offer share-based benefit schemes, such as option programmes, which makes them more attractive as employers and links employees' pay to the company's success. This is, however, something that unlisted companies can also offer their employees, but it is safer for the employee if the company is listed.
Disadvantages of being a listed company
Below we describe the disadvantages of being a listed company.
Higher costs
A listing increases costs for auditing, ongoing reporting and legal advice, among other things. This is due to the strict transparency requirements placed on listed companies, which require resources to ensure regulatory compliance.
More scrutiny and transparency requirements
Listed companies must publish important documents, such as financial reports and strategic decisions, which means strategically sensitive information becomes available to investors, the media, analysts – and competitors.
Focus on short-term profitability
Listed companies can feel pressure from shareholders to show improved results every quarter. This can lead the company to prioritise short-term profitability over long-term goals such as growth and innovation, which in the long run can harm the company's development.
There is a risk of hostile takeovers
Because the shares are publicly traded, listed companies are vulnerable to hostile takeovers. If a party buys a large share of the stock, it can take control of the company, even against management's wishes.
Frequently asked questions
What is the difference between a listed and an unlisted company?
A listed company has shares that are publicly available and traded on a stock exchange, such as Nasdaq. This means the public can freely buy and sell shares in the company, which creates a liquid market. Listed companies must also follow strict rules on transparency and reporting to protect investors.
Unlisted companies, on the other hand, are not available on public stock markets. Even so, investors can buy shares in unlisted companies, often through private transactions or specific trading platforms. Trading in unlisted shares is generally less liquid, and the companies do not have the same public reporting and transparency requirements, which means investors have less insight into the company's finances and development.
What does the disclosure obligation mean for a listed company?
The disclosure obligation for listed companies means they must immediately disclose any event that may affect the share price, such as acquisitions, major agreements, changes in management and material changes in the company's financial position. Listed companies must also report their financials regularly, through quarterly reports and annual reports, to give the market continuous insight into the business.
This obligation is governed by the EU's Market Abuse Regulation (MAR), which requires all inside information to be disclosed accurately and fairly to ensure transparency and equal treatment of investors.
