Delisting: when a company leaves the stock exchange

Just as companies list on the exchange, they can also leave it through delisting. This guide explains what delisting is, how SEBI regulates it and what it means for shareholders.

Quick answer

Delisting is when a company's shares are removed from the stock exchange, so they no longer trade there. It can be voluntary, where the company chooses to go private, or compulsory, as a penalty. SEBI regulates delisting with rules to protect shareholders, especially on the price offered to buy them out.

Key takeaways

• Delisting removes a company's shares from the exchange.
• It can be voluntary or compulsory.
• Voluntary delisting often means going private.
• SEBI rules protect shareholders during delisting.
• The exit price is a key safeguard.

What is delisting?

Delisting is when a company's shares are removed from the stock exchange, so they can no longer be bought and sold there. It is the reverse of listing.

After delisting, shareholders can no longer trade the shares easily on the exchange, which is a major change for anyone holding them.

What are the types of delisting?

There are two main types. Voluntary delisting is when a company chooses to remove its shares, often to go private. Compulsory delisting is when the exchange removes a company, usually as a penalty for serious breaches.

The two are very different. Voluntary delisting is a company decision, while compulsory delisting is an action taken against a company.

How does SEBI regulate delisting?

SEBI regulates delisting to protect shareholders. For voluntary delisting, the rules focus on the price at which shareholders are bought out, so they get a fair exit.

The process usually involves offering to buy shares from public holders at a price set through a defined method, with safeguards to prevent unfair treatment.

What does it mean for shareholders?

For shareholders, delisting means the chance to sell on the exchange goes away. In a voluntary delisting, they are usually offered a price to sell their shares before the shares leave the exchange.

If a shareholder does not sell, holding an unlisted share can be difficult, since it is much harder to trade. So the exit offer is important to consider.

What should investors know?

For investors, delisting is a significant event. It is worth understanding the type, the reason and the exit price offered, since it affects your ability to sell.

Understanding delisting helps you respond if a company you hold moves to leave the exchange. Any investment decision should be your own after proper research and reading all related documents.

Frequently Asked Questions