What happens to the shareholders and how they get the money back for their shares? Today, we will see what exactly happens when a stock is delisted from stock market? full guied
To understand de-listing, first let’s understand meaning of “Listing”
Once a stock lists on the stock market, it then has to follow up various processes and comply with many rules and regulations.
when a private company wants to be become a public limited company and offer its share to open public for buying and selling, then it has to get it registered with stock market and make its shares open to public and that is called as “listing”.
In most of the cases, the stock holders will get back the value of their shares on the price which is determined at the time of delisting.
When a company wants to de-register its stocks from stock exchange and no longer wants to let public buy and sell its shares, then it’s called delisting process.
There are two kind of delisting
Involuntary delisting happens not out of choice, but when the situation forces for the delisting. When this happens, mostly the shareholders don’t get the good price, because anyways the stock prices must be at lowest levels. Some of the common reasons for involuntary delisting are
Company is bankrupt or ceases its 0perations
No longer meets the listing requirement on stock exchange
Violations of Regulations
Failure to meet the minimum financial expectations
In this case, the buyback price offered to the shareholders is more price than the prevailing stock price. Common reasons behind voluntary delisting are
Looking for more control and simplification within company
Merger with another company
Voluntary delisting, as the name suggests happens when the company takes the decision of delisting themselves. It happens mainly because company does not see any benefit in keeping its shares on stock exchange and wants more control.
How the investor gets their money back once the de-listing happens?
In case of Involuntary delisting
In any kind of listing, it’s not suggested to wait for future listing of the company because you have no idea when it will happen again. It might never happen. Also it gets very tough to find a buyer off the market and get a good deal.
When involuntary delisting happens, it’s a case of violation of norms/regulations most of the times and it sends a negative shock among stock holders. Most of the times, the stock is already quoting at a lower price. In this case, whatever price is offered by company, it’s suggested to take it and close the matter.
In case of Voluntary delisting
There is around 1 yr. of time for shareholders to get back their money and it happens through a process called as ”Reverse book building” process.
Understand that if its voluntary delisting, then it’s happening because the company wants it to happen. In this case, there is enough time for shareholders to get back their money and it’s mostly the transaction between the promoter and shareholders. In this case, you can expect to sell your shares back to promoters at premium price.
Hope you all have understood the various aspect of delisting of a company from the stock exchange.