What Happens When a Company Gets Delisted? (2024)

What Happens to the Shareholders?

What happens when a stock is delisted must be an intriguing question for all the shareholders.

If a company is delisted, you are still a shareholder, to the extent of a number of shares held. And yet, you cannot sell those shares on any exchange.

However, you can sell it on the over-the-counter market. This means you can look for a buyer outside the stock exchange.

In a financial sense, each type of delisting of shares – voluntary and involuntary delisting – will impact the investor who owns these shares.

Let’s understand this better.

Voluntary Delisting

In the case of voluntary delisting, listed companies voluntarily opt for permanent removal of securities from the stock exchange where the company decides to go private.

Mostly, mergers with another company, amalgamation, or non-performance are a few reasons for voluntarily delisting. If you own a stock of the company that has opted for voluntary delisting, the company is required to give you two options as per the delisting guidelines laid out by SEBI:

1. Offload Your Shares in Reverse Book Building

Promoter or acquirer will buy back the shares through a reverse book building process. Promoters are required to make a public announcement of buyback by sending out a letter of offer to eligible shareholders and a bidding form.

In this case, you, as an eligible shareholder can exit by tendering your shares. The final price is decided based on the price at which the maximum number of shares has been offered.

When the shares tendered by the shareholders reach the specified limits, delisting is considered successful.

The company shall remain listed in case the limit specified is not met.

2. Hold Till You Find a Buyer

If you have not sold your shares in the reverse book building process or during the exit window period, you can still hold them till you find the buyer on the over-the-counter market.

The delisted share can be hard to sell as there will be no buyers. However, when you wish to sell in the over-the-counter market, all you need is patience. It can take a long time to find the buyer who is willing to buy at the desired price.

When a company voluntarily opts for delisting with some expansion reasons, the company usually offers its investor a buyback at a premium price, which can result in a significant gain.

However, it’s important to note that it’s just a temporary opportunity for investors to gain. Once the buyback window closes, the price of the stock is likely to drop.

Let’s take Vedanta’s example to understand this.

Vedanta is an Indian multinational company with its main operations in iron ore, gold, and aluminum mines. The company’s share touched a peak of around Rs 330-340 levels at the start of 2021.

In May 2021, the company came down to levels of Rs 88-89 per share. The indicative Vedanta delisting offer price was Rs 87. That does not mean that the company will buy the shares from its shareholders only at this price.

Companies have to go for special voting, and shareholders including retail shareholders can also participate in the same. As shareholders disagreed on the valuation of the company, Vedanta failed to delist.

Involuntary Delisting

Involuntary delisting refers to the forced removal of listed company shares from the stock exchange for various reasons including non-compliance with the listing guidelines, late filing of reports, and low share price.

In this case, promoters are required to buy back the shares at the value determined by an independent evaluator. Though delisting does not affect your ownership, shares may not hold any value post-delisting.

Thus, if any of the stocks that you own get delisted, it is better to sell your shares. You can either exit the market or sell it to the company when it announces buyback.

Decisions taken with a careful and prudent analysis of the situation can help you achieve your long-term investment goals.

Can a Delisted Stock Come Back?

Well, yes. A delisted stock can be relisted only if SEBI permits it. The market regulator lays out different guidelines for relisting such shares.

  • Relisting of voluntarily delisted stocks: Such shares will have to wait five years from their delisting date to get relisted again.
  • Compulsory delisting: If a company has been delisted compulsorily, they will have to wait for 10 years before they can be listed again on the exchanges.

The list of delisted stocks can be found on the websites of BSE and NSE. A few of delisted companies are:

Company NameDate of delistingReason
Pradip Overseas16-Mar-22Voluntary Delisting
Dewan Housing Finance Corporation29-Sep-21Voluntary Delisting
Gujarat NRE co*ke24-Sep-21Liquidation
JVL Agro Industries3-Sep-21Liquidation
Hind Syntex3-Sep-21Compulsory Delisting
Shri Lakshmi Cotsyn27-Aug-21Liquidation
Jaihind Projects16-Jun-21Voluntary Delisting
Baba Agro Food5-Mar-21Voluntary Delisting

Do Companies Benefit from Delisting Their Stocks?

Simply put, there are no benefits of delisting from a stock exchange. There are certain regulations and compliances that a listed company has to follow. This includes compulsorily publishing its financial statements and quarterly reports and conducting AGM every year within a time period.

While some of these norms may not apply to unlisted companies, it doesn’t necessarily benefit such companies. For instance, Vedanta’s reason for delisting was that the Covid-19 pandemic has hurt its business, and going private will give it more operational and financial stability to run its business.

In the case of Sintex Industries, Reliance mentioned that as per the Resolution Plan of Reliance Industries Limited jointly with Assets Care & Reconstruction Enterprise Limited it is proposed that the existing share capital of the company will be reduced to zero and the company will be delisted from the stock exchanges i.e. BSE and NSE.

We hope you found this article informative.

Happy Investing!

What Happens When a Company Gets Delisted? (2024)


What Happens When a Company Gets Delisted? ›

When a stock is delisted for failing to meet requirements, it doesn't just disappear. Instead, it begins to trade on the over-the-counter (OTC) market, which is a less-centralized network of stock dealers that facilitate transactions of stocks that aren't listed on major exchanges (e.g., penny stocks).

Do I lose my money if a stock is delisted? ›

Though delisting does not affect your ownership, shares may not hold any value post-delisting. Thus, if any of the stocks that you own get delisted, it is better to sell your shares. You can either exit the market or sell it to the company when it announces buyback.

Can you sell a delisted stock? ›

If you still hold shares after they are delisted, you can sell them—just not on the exchange on which they traded before. Stock exchanges are very advantageous for buying and selling shares. When they delist and trade over the counter (OTC), selling shares and getting a reasonable price for them becomes much harder.

Do delisted stocks ever recover? ›

Trading After Delisting

It is rare that a delisted stock will get itself back on to the more traditional exchanges. To do so, it would have to avoid bankruptcy, solve the issue that forced the delisting, and again become compliant with the exchange's standards.

What happens to put options when a company is delisted? ›

When a stock is delisted, options trading on that stock typically ceases. This means that options holders are no longer able to buy or sell their options on the open market. However, they still have the right to exercise their options if they choose to do so.

Is delisting good or bad? ›

A delisting does not directly affect shareholders' rights or claims on the delisted company. It will, however, often depress the share price and make holdings harder to sell, even as thousands of securities trade over-the-counter.

How do you value delisted shares? ›

How Are Unlisted Stocks Valued?
  1. Book Value Approach. ...
  2. Method of Last Transaction Price. ...
  3. Discounted cash flow method or price to earnings ratio. ...
  4. Value of Net Assets (NAV) Including Goodwill. ...
  5. Value of Net Assets (NAV) Excluding Goodwill.

How long can a stock be delisted? ›

Companies have 10 days on the New York Stock Exchange (NYSE) to respond to a notification letter from the exchange. Failure to respond can result in delisting procedures which is on a case by case basis but can range from one to seven months.

Where can I trade delisted stocks? ›

Failure to meet these requirements results in the shares being delisted. If you own delisted shares, you can still sell them on the Over-the-Counter Bulletin Board (OTCBB) or on the Pink Sheets, which have more relaxed regulations and few listing requirements.

What happens if a stock goes to zero? ›

A drop in price to zero means the investor loses his or her entire investment: a return of -100%. To summarize, yes, a stock can lose its entire value. However, depending on the investor's position, the drop to worthlessness can be either good (short positions) or bad (long positions).

What is the Nasdaq $1 dollar rule? ›

Under certain circ*mstances, to ensure that the company can sustain long-term compliance, Nasdaq may require the closing bid price to equal or to exceed the $1.00 minimum bid price requirement for more than 10 consecutive business days before determining that a company complies.

What happens to share price after delisting? ›

In Case of Voluntary Delisting

Failure leads to selling on the Over-The-Counter market, a time-consuming process due to decreased liquidity. Shareholders profit by selling delisted stock to promoters during the buyback window, but prices may decline after it closes.

What happens if a stock is delisted on Robinhood? ›

Delisting is when a stock is removed from an exchange. Here's what can happen if a security you own becomes delisted: The security's margin requirement can change. Because the security no longer trades on the same exchanges, a national best bid and offer (NBBO) no longer exists.

How to get rid of a stock that no longer trades? ›

If the security cannot be sold in the market, it may be possible to dispose of the worthless security by gifting it to another person who can be related or unrelated to you. If you gift the worthless security to a family member, you will need to ensure that the person is not your spouse or minor child.

What happens if stock goes below $1? ›

When a stock's price falls to zero, a shareholder's holdings in this stock become worthless. Major stock exchanges actually delist shares once they fall below specific price values. The New York Stock exchange (NYSE), for instance, will remove stocks if the share price remains below one dollar for 30 consecutive days.

Can a company take away your stock options? ›

If your vested stock options are not exercised prior to the expiration of the post-termination exercise period, they expire and are canceled! The post-termination exercise period generally starts on the date of termination (ie, the actual end of your service with your employer, not the date when you give notice).

What happens when a stock falls below $1 on the Nasdaq? ›

If a company trades for 30 consecutive business days below the $1.00 minimum closing bid price requirement, Nasdaq will send a deficiency notice to the company, advising that it has been afforded a "compliance period" of 180 calendar days to regain compliance with the applicable requirements.

What happens to your stocks when a company is bought out? ›

If it's an “all-cash” deal, your shares will vanish from your portfolio upon closing, replaced by the specified cash value. Conversely, if it's an “all-stock” deal, your shares will be swapped for shares of the acquiring company.

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