You may have frequently encountered and heard about companies delisting their shares. Delisting from NSE is just as real as listing on NSE. When businesses no longer want to make their shares available for trade, this may choose to undergo this process.
Delisting is removing a company's listed shares from a stock market where they are regularly traded. It prohibits the trading of the delisted company's securities on the stock market. It may be carried out either voluntarily by the firm or forcibly by SEBI in response to any wrongdoing on the part of the company.
A corporation must abide by a set of rules in order to list on the stock exchange. If the firm doesn't comply, SEBI takes action that often results in the company's delisting from the stock exchange.
What is voluntary delisting?
When companies determine, with the use of a cost-benefit analysis, that the expenses they undergo by being publicly listed overshadow the advantages it provides, they decide to delist themselves. In other cases, when a company is acquired by a private equity firm, where new owners will restructure it, the company might apply to be delisted.
If a firm decides to delist voluntarily, the shareholders are usually paid a premium to the ordinary price of the shares. The exchange removes the transaction when an investor sells delisted shares. Therefore, any profit is considered a capital gain.
Capital gains tax is not assessed if the delisting takes place a year after the investment is bought. However, any gain will be subject to taxation depending on the individual's tax bracket if the delisting occurs within a year.
What is involuntary delisting?
When there is a breach of the rules or when the minimum financial expectations are not met, the listing is involuntarily removed by the exchange. The listing exchange will issue a warning of non-compliance if a firm does not comply with the listing standards and if the firm is unable to fix this issue, the stock market will delist the company's stock.
In this case, the corporation would repurchase shares from the shareholders at a price set by an independent evaluator. Similar to a voluntary delisting, an involuntary delisting has no impact on your ownership of shares; but, if a firm is delisted, its shares are likely to lose some of their value.
Delisting might have a negative impact on both the firm and the shareholders. There is a substantial amount of sunk investment, particularly in the case of stockholders. Do thorough research before investing to make sure you aren't leaving your money in the hands of a risky venture.