Delisting of securities means removal of securities of a listed company from a stock exchange. When a company is delisted from a stock exchange, there will be no trading of its securities in that exchange. Delisting can be
Voluntary – The company pays investors and removes its securities from the exchange. This happens when the company wants to restructure or is acquired by another company.
Forced – The company is removed from the stock exchange due to reasons of non-compliance.
Usually shareholders are notified in advance about the delisting so that they can decide on their next steps.
Why do companies get delisted?
Companies get delisted from a stock exchange for many reasons -
- Non-compliance with listing requirements of the exchange.
- Violation of regulations
- Switching of exchange.
- Company becomes a private limited company
- Liquidation or Bankruptcy
- Mergers, amalgamations, takeovers.
In case of a voluntary delisting, the company offers shareholders a price that is more than the current market value for the shares. This happens off the exchange and is a transaction between the promoter and the shareholder.
In case of forced delisting, the shareholder has to sell at the price decided. This can be more or less than the actual value of the stock. In some cases, the shareholder is unable to sell the stock. The entire investment has to be written off as a loss. You might make losses here, but it is better to release blocked funds in bad investments and deploy them in more profitable and safe investment options.
There are some brokers who trade in stocks of delisted companies. They might buy the shares of the delisted company from you if they see value or think there is a demand from other investors. In some cases, people buy stocks that are going to be delisted. There is demand for shares that are going to be delisted because valuation may increase when the shares are delisted. There could be a re-listing some time in the future at a much higher value than the current price.
Market operators and people in the know of the situation in the company may buy delisted shares. f you are a retail investor, you may want to stay away from buying delisted shares. It is a risky proposition and you could end up losing your money. Moreover there are not many regulations governing such transactions and therefore you may not have much of a legal backing if something goes wrong.
What are the tax implications of selling delisted or to be delisted shares for the retail investor?
Profits made on selling shares (whether listed, delisted or to be delisted) are considered as capital gains. If delisting takes place after one year of the investor buys the security, there are no capital gains tax as it is considered as long-term gains. If delisting happens within a year of the purchase, the gains will be taxed as per the tax slab that the buyer falls under.
What else should I know about delisting?
- Companies cannot voluntarily delist their shares unless they have been listed in a recognised stock exchange for at least three years.
- Promoters and whole-time directors of companies that have been forcibly delisted are not allowed to become directors of any listed company till a fair exit option is provided to the public shareholders.
Which are some of the companies that have been recently delisted from BSE and/or NSE?
You can check here for companies that have been delisted from BSE.
The companies delisted from NSE can be downloaded from the website of NSE.
Recently, SEBI has named 331 companies and asked the BSE and NSE to initiate action against them as they are suspected to be shell entities and not real companies. Regular trading for these companies is not allowed for this month.
It is important to do a thorough research and analysis of the stock before buying it. Sometimes even that may backfire. In such cases, it is best to move on learning from the mistake rather than moping about the loss.