To begin with, the stock exchange has several requirements that a company must meet & maintain to remain listed. Listed firms are those that are listed and traded on certain exchanges. But A public corporation does not have to be listed all of the time. On the stock exchanges, there are thousands of companies that traders/investors buy/sell on a daily basis. Particularly, Long-term investors buy stocks when they believe the stocks are undervalued and sell them when the investors thinks the stocks are overvalued.
However, there is a segment of the market that invests in stocks that have yet to be listed on stock exchanges. And this is when unlisted shares come into play. Unlisted shares, unlike listed shares, are not traded on stock exchanges but can nonetheless raise money from investors. Moving forward, in order to gain a deeper knowledge of the background, let us go over the specifics of Unlisted Shares in this piece.
What are Unlisted Shares?
These are enterprises that are not publicly traded on the listed exchanges but are privately held. They do not have the option to gather funds since they are not on the list. The trading of shares is done “over the counter,” which means that the terms of the agreement may be tailored to the needs of the parties involved (buyers and sellers), avoiding the exchange framework. Unlisted businesses have more autonomy over their operations. Under Unlisted Companies, the stockholders have the right to seek an informational note containing the highlights of the proposed private placement from a public business that is not listed on the stock exchange, which the firm must supply. But the Investors must be aware that purchasing shares in an unlisted public business via a private placement with the promise of a similar listing does not guarantee that the shares will be included on the list. It also does not imply that a stock exchange is obligated to quote such securities.
If the directors of an unlisted public company that has offered shares in a private placement have followed the provisions of the Companies Act during the private placement, they are not subject to any additional responsibility.
Difference Between – Delisted Shares & Unlisted Shares
Unlisted and delisted shares are not the same thing. Both of these sorts of shares are quite distinct from one another. Unlisted shares are those that have not yet been listed on stock exchanges, whereas delisted shares are those that were originally listed but have since been removed from the category of listed shares for various reasons. Unlisted shares can be traded and invested in on OTC marketplaces, like unlisted -delisted shares can be traded or invested in over the counter. Shares that have been delisted are no longer available on any stock-exchange.
Companies may have unlisted shares if they do not intend to do an initial public offering (IPO) or if they do not meet SEBI’s standards for listing the shares on any stock market, such as the NSE or BSE. When a company doesn’t follow rules led by SEBI or the exchanges or when the management wishes to delist the company, the shares of the company get delisted.
Taxation on Unlisted Companies
If an unlisted stock is sold within two years of its purchase date, the gain or loss is termed a short-term capital gain and the same is taxed as per the individual’s tax bracket. If the same is sold after 24 months from the purchase date, however, the gain or loss is long-term. If equities are sold after 24 months, they are deemed long-term, and capital gains are taxed as long-term capital gains at 20% with indexation in the event of a resident taxpayer and 10% without indexation.
What are the Benefits of Having Unlisted Shares?
Following are some of the typical benefits that an investor must consider while they plan to buy unlisted shares:
- The stocks of Unlisted Companies cannot be traded on the stock exchanges but one can find hidden gems if they research properly about it as the pre-listing price of shares is lower than that of post-listed shares in most of the scenarios. And therefore, when an investor invests in stocks that are undervalued, they can make good profits in that investment. This is when Unlisted Shares can prove to be high-value investments.
- Like Listed Shares, one can hold the Unlisted shares also in the Demat form.
- Unlisted shares are typically exchanged between corporations, large brokerage firms, and high-net-worth individuals (HNIs) or institutional clients. As a result, the risks of unlisted shares are reduced based on the reputation of market participants. If you choose the correct intermediary like Rurash Financials for trading in unlisted shares, the risk is also reduced and mitigated to a large extend.
- Unlisted shares can give you diversification of risk as they can be a distinct asset class in themselves & therefore, they provide risk diversification to the investors.
Impact of Budget 2022 on Listed & Unlisted Companies
On the Budget Day, Sensex ended 848 points higher & Nifty was above 17550 that overall positive response was given by the investor’s as-.
1. The rate of surcharge on all types of assets has been fixed at 15% in the Budget, regardless of the size of long-term capital gains (LTCG). This would encourage long-term equity investments in startups by bringing the levy on unlisted securities and assets to the same level as listed equities.
2. Moving Forward, As the budget for 2022 also has many positive effects on the various sectors which will in return boost the prices of the stocks (listed & unlisted) in the upcoming year; the same has been listed below –
For the Telecom Industry – With plans to auction 5G, the categorization of data storage under the umbrella of infrastructure would enhance the sales and operations of the already decreasing telecoms.
For the Logistic Industry – The launch of 400 new Vande Bharat trains as well as infrastructure improvements to connect rural locations for practical mass transit in the next three years is expected to improve connectivity and increase trade.
For the Finance Industry – The Ministry’s regulation of digital virtual assets, to tax the earnings from such investments at 30%, has ushered in a significant change. The government has also announced that it intends to establish its digital token, which will influence the minting operations and deposits of public sector banks.
For the Real Estate Sector – For the past five years, the incumbent administration has focused on affordable housing. A similar pattern has persisted in the new fiscal year, with additional contracts for cement and related sectors coming in. The opportunity for a tax exemption under section 80IBA has been extended to affordable housing projects.
Lastly to sum this up, if you pick the correct company for investment, unlisted shares has potential to give multifold returns. The fundamentals of the companies and the intermediary through whom you will purchase the shares are the most significant factors to consider when choosing an unlisted stock.
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