What Happens When a Company Gets Delisted?

Delisting is the process of removing a company's listed shares from the stock exchange by ending its public trading perminantly. While the company is no longer listed, shareholders retain ownership of their shares. Understanding the reasons, process, and impact of delisting can help investors make informed decisions.

Key Highlights:

• Delisting refers to the process of a company being removed from a recognised stock market, either of its own volition or for refusing to comply with regulations.
• With delisting, shareholders may either accept the offer and receive payment or keep their stock, even though they will no longer be able to trade it. 
• Delisting affects how shareholders can sell, hold, or transfer their shares after the company is delisted from the stock exchange. 

What is Delisting?

Delisting is the process of removing a company's shares from a recognised stock exchange, such as the NSE or BSE. Once a company is delisted, its shares can no longer be bought or sold on that exchange.

A company may choose to delist voluntarily, or it may be removed by the stock exchange if it fails to meet regulatory or listing requirements. Although trading on the exchange stops after delisting, shareholders are generally given an exit opportunity in accordance with SEBI regulations, depending on the type of delisting.

Example: Suppose XYZ Ltd. decides to become a privately owned company. It buys back the public shareholders shares through the SEBI-prescribed delisting process, thereby removing its shares from the stock exchange. After the delisting is complete, investors can no longer trade ABC Ltd.'s shares on the NSE or BSE.

Types of Delisting

Delisting is broadly classified into two types based on how and why a company's shares are removed from a stock exchange.

Voluntary Delisting

Voluntary delisting occurs when a business decides to take its equity off the stock market. It could happen for numerous reasons, including the owners' plans to transform the firm into a private company, to merge with another enterprise, or to cut expenses and reduce the compliance required to remain listed on the stock market.

Compulsory (Involuntary) Delisting

Involuntary (compulsory) delisting occurs when the stock market delists a company's equities due to failure to comply with listing requirements. The reasons for this action include the firm's prolonged losses, failure to disclose information, and non-payment of the listing fee. Contrary to voluntary delisting, this process is initiated by the stock market itself.

How does voluntary delisting work?

Voluntary delisting follows a structured process to ensure that public shareholders receive a fair exit opportunity before the company's shares are removed from the stock exchange.

• Board Approval: The company's board of directors approves the proposal to delist its shares.
• Shareholder Approval: The proposal is placed before shareholders, and it must receive the required approval under SEBI regulations.
• In-Principle Approval from the Stock Exchange: The company obtains approval from the relevant stock exchange to proceed with the delisting.
• Exit Offer to Shareholders: The promoters make an exit offer, allowing public shareholders to sell their shares at a price determined under SEBI's delisting framework.
• Completion of Share Acquisition: If the required acceptance conditions are met, the promoters acquire the tendered shares from public shareholders.
• Delisting of Shares: After the process is completed, the company's shares are removed from the stock exchange and can no longer be traded on the public market.

How does Compulsory delisting work?

Compulsory delisting is initiated by the stock exchange when a company repeatedly fails to comply with listing regulations or other regulatory requirements.

• Identification of Non-Compliance: The stock exchange identifies serious violations, such as failure to meet listing standards, prolonged trading suspensions, or non-compliance with disclosure requirements.
• Notice to the Company: The company is issued a notice and allowed to respond to or rectify the non-compliance within the prescribed time.
• Review by the Stock Exchange: After considering the company's response, the stock exchange decides whether to delist the company compulsorily.
• Delisting Order: If the violations remain unresolved, the stock exchange passes a delisting order and announces the removal of the company's shares from trading.
• Exit Opportunity for Shareholders: Independent valuers determine the fair value of the shares, and eligible shareholders are provided an exit opportunity in accordance with SEBI regulations.
• Removal from the Exchange: Once the process is complete, the company's shares are delisted and can no longer be traded on the recognised stock exchange.

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:

1. Accept the offer: Sell your shares to the acquirer at the offered price. You’ll get your money through your bank account.
2. 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 opportunity to sell during the delisting process, you can sell your shares to the promoter at the same price for at least one year after delisting. 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. This ensures shareholders receive a fair price for their shares.

However, because compulsory delisting often occurs when a company is in trouble, the share price may be lower than what you paid. You’ll still legally own your shares, 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 the case of 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 Re-list on the Stock Exchange?

Yes, a company that has 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: Under Regulation 40 of the SEBI (Delisting of Equity Shares) Regulations, 2021, a company that has voluntarily delisted its equity shares cannot seek relisting for three years from the date of delisting.
• Meeting requirements: The company must comply with the stock exchange’s listing rules, such as maintaining a certain level of profitability, providing financial reports, and demonstrating financial stability.
• Approval process: The company’s application is reviewed by the Central Listing Authority, which determines whether 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.

Emerging Trends in Delisting 

The topic of delisting has gained prominence due to market changes. The trends can be explained as follows: 

Increase in Voluntary Delisting

There is an increase in the number of companies choosing to go private in countries such as the U.S.A. and India rather than comply with stock exchange rules.

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

Private Equity Buyout

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

The shareholders are becoming more assertive. During the voluntary delisting process, they ask for more than they really deserve for their shares in the reverse book-building process. 

Technology and OTC Markets

The introduction of devices for trade opened a new world of opportunities for the selling of shares after delisting. In 2025, new devices for OTC trading will appear, allowing shareholders to execute successful transactions with their delisted shares, even if the sale may not yield sufficient proceeds. 

Regulatory Changes

The increasing severity of regulations introduced by SEBI and similar organisations helps protect stakeholders during the delisting process. In 2025, SEBI published new regulations to ensure equal rules for compulsory delisting.

What Happens If You Keep Your Shares After Delisting?

If you choose not to sell your shares during the delisting process, you will continue to own them, but they can no longer be traded on the stock exchange. Here's what happens next:

• You Remain a Shareholder: Your ownership in the company continues even after the shares are delisted.
• No Exchange Trading: You cannot buy or sell the shares on recognised stock exchanges such as the NSE or the SE.
• Limited Liquidity: Selling the shares becomes more difficult because transactions typically occur through private arrangements or other permitted mechanisms.
• Corporate Benefits Continue: You may still receive dividends, bonus shares, rights issues, or other shareholder benefits if the company declares them.
• Future Exit Opportunities: In some cases, the company or its promoters may offer another opportunity to buy back the shares, subject to applicable regulations and company decisions.

Note: Shareholders rights after delisting may vary depending on whether the delisting is voluntary or compulsory, as well as on the applicable SEBI regulations.

Conclusion

Delisting is the process by which a company ceases to trade its shares on the stock market. Regardless of the reason for the delisting, shareholders still have the right to sell their shares and receive the proceeds. You can either sell your shares back to the issuer, trade them on the OTC market, or hold them if you are confident the company will recover.