My this article is about the Delisting of shares, how it works, what is the procedure, statutory requirements and types of delisting of shares. Delisting of shares means the removal of shares and securities from the recognised stock exchange of a listed company.
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When Delisting is required ??
Delisting means to delist from both the recognised stock exchanges if there, means if a company delists from one of the stock exchanges than it would not be regarded as Delisting. Delisting is normally done when the listing fees have become burden to them because there securities are not able to satisfy the purchase sell of the shareholders. Company has an option to sell any class of securities and there is no restriction on class of securities but the company cannot delist by way of buy back of shares, but the types of delisting are mainly two :
Voluntary Delisting :
When the promoter, or acquirer or person having major control over the company claims for the delisting of the shares, it is known as voluntary delisting which does not constitute any requirement of a law.
(ii)When it is required :
There may be many reasons behind a delisting of share mainly because of quarrels among the members for any matter, only negligible trading on the stock exchange, mergers, amalgamations, suspension of business, listing fees become burdensome etc.
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(iii)Conditions for voluntary delisting :
- Minimum listing period of 3 years
- Delisting through book building process.
- All members approval
- Form filing with ROC
- Board approval
- Auditors Certificate
- Listing fee arrears
- Application for delisting of shares
- Intimation to Stock exchange
- To be mentioned in Directors Report
- Purchase price
- Exit price to the shareholders
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Compulsory Delisting :
When a listed company is compelled by the recognised stock exchange for delisting its securities due to one or more reasons it is referred as Compulsory Delisting.
(ii)Reasons for compulsory Delisting:
- Reduction in number of shareholders than minimum required under companies act
- Listing fees arrears
- Investors complaints which are not solved in time.
- Compliance procedures are not fulfilled
- Unfair trade practices and mal practices
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How the Exit price is decided ??
The exit price should be decided in such a manner in which the investors and the shareholders are satisfied about the price they are paid for the exiting the company. There are mainly two methods through which exit price is decided
- When securities are frequently traded :
The exit price or the offer price here in this situation would be average of 26 weeks traded price in whichever stock market they are traded and the same price should be before the announcement being made.
- When securities are not frequently traded :
The exit price or the offer price here would be decided as any of the following :
- Earnings per share
- Highest price paid by acquirer
- Return on net worth
- Book value of shares
The public announcement of the same is also required that the following named company has been permanently delisted from the stock market and no trading of the same would be done.