What Happens When a Company Gets Delisted?

When a company’s shares are traded on a stock exchange, like NSE or BSE, it’s called a listed company. People can buy and sell these shares easily through brokers or trading apps. But sometimes, a company decides to remove its shares from the stock exchange, meaning they are no longer available for trading. This process is called delisting. When a company delists, it often becomes a private limited company, which means it’s no longer open for public trading.

What is Delisting?

Think of a stock exchange as a big marketplace where people buy and sell shares of companies, like how you buy vegetables in a market. When a company lists its shares, it puts its shares in that marketplace for everyone to trade. Delisting is the opposite; it’s when the company takes its shares out of the marketplace, so people can no longer buy or sell them there.

When a company delists, it becomes a private company. This means only a few people, like the company’s owners or big investors, can own its shares. The general public can’t trade them anymore. Delisting can happen for two main reasons: either the company chooses to delist (called voluntary delisting) or it’s forced to delist by the stock exchange (called compulsory delisting).

Types of Delisting

Let’s break down the two types of delisting so it’s crystal clear.

Voluntary Delisting

Voluntary delisting is when a company decides on its own to remove its shares from the stock exchange. Imagine a shop owner deciding to close their store because they want to run their business privately. Here’s why a company might do this:

• An investor wants to buy the company: Sometimes, a big investor or another company wants to own most of the company. They might buy up shares to gain control, and to make it easier, they delist the company.
• The company wants privacy: Public companies have to share a lot of information with the public, like how much money they make. Some companies prefer to keep things private.
• Fewer rules to follow: Listed companies must follow strict rules set by the stock exchange. By delisting, they can avoid these rules and save money.

How does voluntary delisting work?

When a company wants to delist, it must buy back its shares from the public shareholders who own them. The company offers these shareholders a price to return their shares. This price is decided through a process called reverse book building. It’s like the company asking shareholders, “What price will you sell your shares for?” The company then picks a fair price based on what shareholders say.

Who can sell shares? 

Shareholders can sell their shares to the company through their stockbroker during normal trading hours. They fill out a form to say how many shares they want to sell.

What if you don’t sell? 

If you don’t sell your shares during this process, you can still sell them to the company’s promoter (the main owner) later at the same price. This option is available for at least one year after the delisting process ends.

When is delisting successful? 

Delisting works if the company or the investor buying the company ends up owning 90% or more of the company’s shares.

For example, in 2023, a company called Vedanta Limited in India voluntarily delisted its shares. The promoters offered to buy back shares at a set price, and after getting enough shares, the company left the stock exchange and became private.

Compulsory Delisting

Compulsory delisting happens when the stock exchange or a regulatory authority (like SEBI in India) forces a company to remove its shares. This is like a shop being shut down by the government because it’s not following the rules. Here’s why this might happen:

Breaking rules: 

If a company doesn’t follow the stock exchange’s rules, like not sharing financial reports on time, it can be forced to delist.

Irregular trading: 

If the company’s shares are not traded regularly (for example, very few people buy or sell them over three years), the stock exchange might delist it.

Financial problems: 

If the company loses a lot of money and its net worth (the value of its assets minus debts) becomes negative for three years, it can be delisted.

When a company is compulsorily delisted, it’s not its choice. The stock exchange suspends trading of its shares for six months as a warning. If the company doesn’t fix the problems, it’s delisted permanently.

Example:

Several small companies in India, like Kingfisher Airlines, were compulsorily delisted because they couldn’t recover from financial losses and didn’t meet SEBI’s requirements.

How Do Shareholders Get Their Money Back?

When a company delists, shareholders might wonder, “What happens to my money?” Don’t worry, there are ways to get your money back, but it depends on whether the delisting is voluntary or compulsory.

Voluntary Delisting

If a company voluntarily delists, it sends an official letter to all shareholders. This letter comes from the acquirer (the person or company buying the shares, often the promoter). The letter includes:

• An offer to buy your shares at a specific price.
• A bidding form where you can say if you want to sell your shares and how many.

You have two choices:

• Accept the offer: Sell your shares to the acquirer at the offered price. You’ll get your money through your bank account.
• Refuse the offer: Keep your shares. You’ll still own them, but you can’t sell them on the stock exchange anymore.

If you miss the chance to sell during the delisting process, you can sell your shares to the promoter for at least one year after delisting at the same price. If you still don’t sell, you can try selling your shares on the over-the-counter (OTC) market. The OTC market is like a smaller, less organised marketplace where shares are traded directly between buyers and sellers. But there’s a catch: it’s harder to find buyers on the OTC market, and you might get a lower price.

Compulsory Delisting

The process is slightly different in compulsory delisting. The company’s promoter must buy shares from shareholders at a fair price decided by an independent evaluator (a professional who calculates the value). This ensures shareholders get a reasonable amount for their shares.

However, because compulsory delisting often happens when a company is in trouble, the share price might be lower than what you paid for them. You’ll still own your shares legally, but their value might drop, and you can’t trade them on the stock exchange. If you miss the promoter’s buyback offer, you’ll need to sell them on the OTC market.

Also, in compulsory delisting, the company’s promoters and directors face strict penalties. They are banned from participating in the stock market for 10 years after the delisting.

Can a Delisted Company Come Back to the Stock Exchange?

Yes, a company delisted its shares can relist on the stock exchange, but it’s not easy. Relisting is like starting fresh, similar to when a company goes public through an Initial Public Offering (IPO). Here’s how it works:

Cooling-off period: 

In India, according to SEBI rules (Section 18.1), a company must wait at least two years after delisting before it can apply to relist.

Meeting requirements: 

The company must meet all the stock exchange’s listing rules, such as having a certain amount of profit, sharing financial reports, and proving its financial stability.

Approval process: 

The company’s application is checked by the Central Listing Authority, which decides if it can relist.

Example: 

Some companies delisted during the economic challenges of the early 2020s are exploring relisting as markets recover. However, they need to show strong financial performance to get approval.

Latest Trends in Delisting

Delisting has become a hot topic recently, as companies and investors adapt to changing markets. Here are some trends explained in simple terms:

More Voluntary Delisting: 

Many companies, especially in India and the U.S., are choosing to go private to avoid the strict rules of stock exchanges. 

Example: Tech companies like Byju’s have considered delisting to focus on long-term growth without worrying about share prices every day.

Private Equity Buyouts: 

Big investors, called private equity firms, are buying and delisting companies. They believe they can improve the company privately and relist it later for a profit. In 2025, private equity deals are at an all-time high, with firms targeting companies in technology and healthcare.

Shareholder Activism: 

Shareholders are becoming more vocal. In voluntary delisting, they demand higher prices for their shares during the reverse book-building process. In 2024, shareholders of an Indian company, Adani Power, pushed for a better buyback price, setting a trend for 2025.

Technology and OTC Markets: 

Thanks to digital platforms, selling shares after delisting is getting easier. New OTC trading apps and websites will pop up in 2025, making it simpler for shareholders to sell delisted shares, though prices may still be lower.

Regulatory Changes: 

SEBI and other regulators are making delisting rules stricter to protect shareholders. In 2025, SEBI introduced guidelines to ensure fair pricing in compulsory delisting, so shareholders don’t lose too much money.

What Happens If You Keep Your Shares After Delisting?

Even after a company delists, you remain a shareholder. Your shares are still yours, and you have legal rights to them. However, there are some challenges:

No stock exchange trading:

You can’t sell your shares on the stock exchange anymore. You’ll need to find a buyer on the OTC market, which can be slow and less profitable.

Lower value:

Delisted shares often lose value because they’re harder to sell.

Dividends and benefits:

If the company makes profits and pays dividends (a share of profits given to shareholders), you’ll still get them as a shareholder.

For example, if you owned shares in a company like Tata Sky (now Tata Play) after it delisted, you could still receive dividends if the company performs well, but selling the shares would be tricky.

Conclusion

Delisting might sound complicated, but it’s a process where a company stops trading its shares on the stock exchange. Whether voluntary or compulsory, shareholders can sell their shares and get their money back. You can sell to the promoter, use the OTC market, or hold onto your shares if you believe in the company’s future.