What is delisting of Shares and impact of delisting of shares on equity shareholders?

Delisting of Share: It means the permanent removal of stock from the Stock exchange and hence it could not be traded anymore. Delisting prohibits the securities of the delisted company from being traded on the stock exchange. It can be done either on the voluntary decision of the company or forcibly done by SEBI (Securities & Exchange Board of India) on account of some wrongdoing by the company. There are certain norms/rules which a company needs to follow while listing on the stock exchange. In case the company fails to do so, then SEBI takes disciplinary action which generally leads to the delisting of the company from the stock exchange.

In order to understand the meaning of delisting in a better way, one needs to understand the meaning of “Listing”

Listing means the admission of a Company’s securities to the trading platform of a Stock Exchange, so as to provide marketability and liquidity to the security holders.

“Delisting” is totally the reverse of listing. To delist means permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be tradeable at that stock exchange."Delisting" may be Voluntary (i.e. at the will of the Company) or Compulsory (i.e. out of a penal action by the Stock Exchanges, for the reason of any violations/ lapses).

 

Impact of delisting of shares on equity shareholders:

In a Voluntary delisting when the Company decides to remove its share from the Stock exchange, it pays off the shareholders the amount corresponding to the shares they hold and then removes these shares from the Stock exchange. The delisting is considered successful only when the sum of the shareholding of the acquirer and the shares offered by the public shareholders gets equal to 90% of the Company’s entire share capital. Voluntary delisting never happens suddenly. The investors are given enough time to sell their shares anywhere apart from the Stock Exchange

In Compulsory delisting, according to the delisting regulation, an independent evaluator has to be appointed who evaluates and determines the fair value of the delisted shares. Then the promoters are required to purchase the shares at the value determined by the Independent evaluator.

Even the shareholders can retain their shareholding when the company negotiates with the shareholders and they have a hope of the relisting of the company again.