What happens after a company gets delisted?

A corporation that wants to sell its shares on a large public market must comply with several rules. Failure to adhere to these regulations continuously may result in the stock being delisted from the exchange.

A delisting occurs when a company’s shares are offered on numerous stock exchanges and are withdrawn from one of them. To be delisted, the company’s shares must be withdrawn from all the stock exchanges so that no one may trade in them.

After a company gets delisted, its shares are no longer traded on a stock exchange. This can happen for various reasons, including failure to meet listing requirements, bankruptcy, or a merger or acquisition. 

Once a company is delisted, shareholders may still be able to trade their shares on the over-the-counter (OTC) market, but the liquidity and price of the shares may be adversely affected.  

Here we will look into a detailed overview of how the delisting of shares works!

What do you mean by delisting?

The delisting, in simple terms, refers to the withdrawal of a listed company’s securities from a stock exchange. As a result of delisted stock, the company’s securities will no longer be tradable on trade exchanges like National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE) (BSE).

 

The primary goal of exchange listing standards is to improve market visibility and investor trust. For various reasons, a listed company’s shares are delisted from the exchange. These include inadequate market capitalisation, a firm declaring bankruptcy, and failing to meet exchange regulation criteria.

 

A company’s shares can be delisted in two ways:

  • Voluntarily delisting 

The voluntary delisting of shares occurs when a business removes all of its shares from the stock market, making them inaccessible for trade. The corporation compensates stockholders for the return of their shares and delists the full lot from the stock exchange.

  • Compulsory delisting of shares

When a regulatory authority forces a corporation to delist its shares, this is referred to as the compulsory delisting of shares. If a firm fails to adhere to the stock exchange’s requirements, it will be forced to delist.

What happens if you own shares of the delisted company?

If you own shares of a delisted company, a few things could happen. Another company may buy out the company, or it may go bankrupt. You may get paid a premium for your shares if the company is bought out. If the company goes bankrupt, you may lose all of your investment.

 

If you possess shares in a firm after delisting, you are not permitted to sell them on the NSE or BSE. You can, however, sell your shares outside the stock markets.

 

There are two methods for selling your shares of a company whose stock is being voluntarily delisted.

  • Reverse book-building procedure

  • By publicly announcing their deal to buy back the shares, the company’s promoters use this strategy. They must deliver a letter of offer and a bidding form to all qualified shareholders. You can dispose of your shares as a shareholder by requesting a buyback.

As a shareholder, choosing a buyback at a high price might result in a sizable profit. You should be aware that the firm’s delisting won’t be accomplished until the promoters own 90% of the company’s entire share capital after buying back their shares.

  • Over-the-counter market

Investors will have to spend time finding purchasers on the over-the-counter market if they cannot sell their shares to the promoters since they, too, missed the one-year deadline.

In involuntary or compulsory delisting, an unbiased evaluator is hired, and they determine the amount at which the shareholders of the delisted corporation may sell their shares to the buyer.

However, the shareholders in this scenario do not benefit financially from the repurchase because compelled delisting typically occurs due to non-compliance, non-disclosure, or other bad behaviour.

If a corporation hits the 90% threshold, it is always preferable to offer shares and invest the money somewhere else where they would provide higher returns.

After the period wherein the company buys back such securities has passed, investors who sell shares straight to promoters are liable to the appropriate taxes.

To raise more funds from the public, companies typically launch initial public offerings (IPOs) when the marketplaces are optimistic, according to experts.

On the other hand, they often delist whenever the markets are weak so that they may purchase the shares at a lower price since this gives investors a better exit price than the current market price.

Conclusion

The delisting of corporations may occur for various positive or bad causes. When shareholders learn that their shares may be delisted, it is preferable to dispose of them, especially if the delisting is required. You should be aware that while voluntarily delisting doesn’t always result in a fall in share value, forced delisting may do so. But as a shareholder, you can continue to possess them, request a repurchase, or trade shares over the counter.

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