You may have heard quite often that the Securities and Exchange Board of India (SEBI) has decided to delist companies from the stock exchange. So, what exactly is delisting of shares and how it will impact the investors or shareholders? Let us try to find out the answers.
What is Delisting of Shares?
Delisting means removal of shares of a listed company from a stock exchange. As a result, the shares of a delisted company would no longer be traded at the exchange. It is important to note that getting delisted can either be a voluntary decision of the company or the SEBI may remove the shares if:
- The company has suffered losses or the net worth has decreased to less than its paid-up capital.
- The company has failed to adhere to the listing agreement requirements.
- The company has failed to redress grievances of the customers or shareholders.
- The shares are continuously traded.
- The promoters or directors of the company indulge in unfair share trading practices.
- The trading of shares has to remain suspended for more than six months.
Other Important Thing to Remember: The delisted companies are not allowed to access the stock market for 10 years that is from the date the company has been delisted compulsorily.
Types of Delisting of Shares
There are two main ways for delisting of shares, which are mentioned below:
- Voluntary Delisting: Here a listed company decides to remove its shares from the stock exchange permanently. In such a case, the shares of the company become worthless. In the case of voluntary delisting, a prior approval of the shareholders is required by a special resolution at the General Meeting of the company. For the resolution to get passed, at least 75% shareholders must vote in favour of it. Moreover, an exit route will have to be provided by the promoters of the company to the shareholders.
- Compulsory or Forced Delisting: It means the removal of shares permanently from the stock exchange when the company is not able to comply with the listing requirements mentioned in the listing agreement within the prescribed time period. Here, like the voluntary delisting, there is no provision for the exit route for the shareholders or investors. However, the shareholders are given warnings or notice in advance that the company is going to be delisted and if he/she fails to sell the share before delisting, then the entire investment in the share will be lost.
How Delisting of Shares Impacts Shareholders?
After the company gets delisted from the stock exchange, then all is not for the shareholders. A valuer is appointed by the SEBI that directs the promoters of the delisted company to buy the outstanding shares from the public. It is to be noted that the price for purchasing the shares is decided by the valuer, hence there is greater transparency in the financial dealings.
If one of your shares has been delisted from the stock market, then it is imperative that you must not panic and rather cautiously try to determine the reasons for its removal and how it will impact you because you do not want to have a share in the investment portfolio, which is getting delisted.
Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.