Everything you need to know about unlisted equity shares!

unlisted equity shares
  • What do they mean?

Shares and stocks that are not traded on official stock exchanges are referred to as unlisted.JIO and OLA, for instance, both have unlisted shares. Similarly, many companies have yet to go public because they don’t meet the requirements to be listed on an official stock exchange. You can get them through unlisted shares brokers, also.

Unlisted shares are riskier than publicly traded ones because they lack liquidity. Their valuations are more reliable, even though they are less transparent. Therefore, if you can select an unlisted share that has the potential to be listed and the company has development potential, your returns from that share can be significantly increased. They also include unlisted company shares.

  • Is it safe to buy unlisted shares?

Over-the-counter (OTC) trading involves the exchange of unlisted shares directly between buyers and sellers rather than through intermediaries. Because this market is neither organized nor regulated, trading in unlisted shares poses a credit risk. However, businesses, significant brokerage firms, HNIs, or institutional clients typically exchange unlisted shares. As a result, the standing of unlisted share market participants reduces the risks. The risk decreases if you select the appropriate intermediary for trading in unlisted shares.

  • The qualification among unlisted and delisted shares

Recognizing unlisted and delisted shares is significant. It is impossible to compare these two distinct share classes. Shares that were initially listed but removed from the category of listed shares for various reasons are referred to as delisted shares. Unlisted offers are those that poor persons have not recorded on stock trades.

You are unable to trade or invest in shares that have been delisted on OTC marketplaces. On any platform, even OTC, shares that have been delisted cannot be purchased.

If a company does not intend to conduct an initial public offering (IPO) or does not meet SEBI’s requirements for listing the shares on any stock market, such as the NSE or BSE, it may have shares that are not yet listed. On the other hand, a company’s shares can be delisted if the company’s management wants to remove the company from the stock market or if the company doesn’t follow any of the disclosure rules set by SEBI and stock exchanges.

  • Unlisted Shares Appraisal

The fair market value (FMV) method is utilized to evaluate shares that are not publicly traded. Since unlisted shares are not traded on a stock exchange, there is no actual market price for them, so the underwriters or investment bankers determine FMV.

The fair market value is calculated by subtracting the book value of all the company’s assets (A) from all its liabilities (L). The result is then divided by the total PE of paid-up equity share capital, as shown on the balance sheet, and multiplied by the PV of equity shares.

  • Tax Implications

The tax implications of unlisted shares are distinct from those of listed shares. If unlisted shares are sold within 24 months, profits are subject to short-term capital gain tax at the marginal rate. However, if it is sold after 24 months, you will also benefit from indexation and pay a 20% long-term capital gain tax. However, profits are calculated using FMV until the shares are listed on a recognized stock market. The tax consequences only apply to equity shares that are listed when you sell your investment after the unlisted shares you bought are listed on the stock exchange.

Author: Jyoti Garg