These days, the companies are keen to get themselves listed on the bourses, filing DRHPs every other day. However, do you know many companies follow the reverse of it and get themselves delisted? In such cases, companies want to stop their shares from trading in the market. Delisting of equity shares from a stock exchange is exactly the opposite of listing of shares. The company promoters take off their shares from the exchanges so that they are not traded on exchanges further. For example, Vedanta Resources is trying to delist its flagship firm Vedanta from the exchanges. Vedanta, one a bluechip name, is heavily traded on both the stock exchanges. The delisting plan of Vedants is being done to simplify the complex business structure of the company. However, existing investors, including the LIC of India, are not very keen to give their stake at lower prices. What is delisting? Delisting of the shares refers to the complete and permanent removal of equity shares of a company from the stock exchanges for buying or selling purposes. This simply means that the shares will not be available to buy or sell on the stock exchanges, i.e., BSE or NSE. Just like the listing process, the complete procedure of delisting is governed by the market's regulator Sebi. Reasons for delisting Just like there are multiple reasons for getting a company listed on the bourses, the reasons to get it delisted from the stock exchanges are numerous too. A company plans for delisting its share from exchanges for various reasons, of which, major includes insufficient market capitalization, stock prices not matching a particular level, company filing for bankruptcy, failure to comply with regulatory norms, or merger and acquisition by some other player. There are two types of delisting- Voluntary and Compulsory. In voluntary delisting, a company decides on its own to remove its securities from a stock exchange whereas in compulsory delisting, the securities of a company are removed from a stock exchange as a penal measure for not making submissions or complying with various requirements set out in the Listing agreement within the time frames prescribed. What is the delisting mechanism? Sebi, under its rules and regulations, provides an exit mechanism to the existing shareholders in the following manner: Voluntary delisting whereby the exit price is determined through the Reverse Book Building process- The floor price is calculated in accordance with the regulations and the shareholders have to make a bid at a price either on or above the floor price. The exit price would be decided on the basis of bidding by the public shareholders. If the exit price so determined is acceptable to the promoter, the promoter pays that price to the investors, and the investors can exit. Those investors who do not participate in the Reverse Book Building process have an option to offer their shares for sale to the promoters. The promoters are under an obligation to accept the shares at the same exit price. This facility is usually available for a period of at least one year from the date of closure of the delisting process. To get the company delisted, at least 90 percent of the non-promoter shareholding shall be tendered by the shareholders. Voluntary Delisting for a small company- Any company with paid-up capital of less than Rs. ten crore and net worth less than Rs 25 crore, whose equity shares have not been frequently traded on any recognized stock exchange for a period of one year and has not been suspended for any non-compliance in the preceding one year would not be required to follow the Reverse Book Building process. In such cases, the promoter decides the exit price in consultation with the merchant banker. The promoter writes to all public shareholders informing the proposal for delisting. Once the requisite consent is received, the promoter makes payment of consideration for the same and the shareholders can exit. Involuntary or Compulsory delisting - refers to the formal removal of listed company shares from the stock exchange for various reasons like non-compliance with the listing guidelines. In such cases, promoters are asked to buy back the shares at the value determined by an independent evaluator. Note: A company that delists its equity shares from a recognized stock exchange but continues to remain listed on another recognized stock exchange would not be required to provide an exit opportunity to its shareholders provided the equity shares remain listed on any recognized stock exchange which has nationwide trading terminals. Is a comeback possible? Of course, a delisted stock can make a comeback and get relisted but there are strict guidelines. Sebi has a different set of rules for re-listing of the delisted companies. If a company is voluntarily delisted, it can be relisted only after five years or more from the date of its delisting. In the case of compulsory delisting, the company has to wait for at least 10 years. What happens to the delisted shares? Delisted shares can either be gain or pain for the investor, depending on the reason and process of delisting. If a stock is getting delisted, it is very crucial to analyze the reason for the same, before taking a decision to hold or sell it. Do investors benefit from the delisting of the shares? Probably, No. If the company or promoters are benefiting from the delisting of shares, in most of the cases, the answer is yes. There are certain rules and regulations that a company has to follow to safeguard the interest of the investors. Delisted companies do not have to follow these norms. One thing is very clear if a company is voluntarily delisted, there is something 'phishy' behind it. It is a common perception. However, if the company is compulsorily delisted, then definitely it is not following the listing norms. In both cases, investors lose money as such companies delist their equity at dirt cheap prices, most of the time. In many cases, shares of delisted companies have vanished from the Demat account of shareholders and investors lose all the money overnight. However, if the company is delisted and investors do not tender their shares, such stocks can be traded in the unlisted markets. The off-market is a good option for the investors to deal in such counters if the stocks are not written off from their Demat account. Is delisting penal? Voluntary delisting may not happen overnight. Though it gives room to investors to offload their stake at a particular price. If an investor continues to hold their stocks post-delisting, they still owe the legal and beneficial ownership rights over the stocks. However, if the delisting is compulsory, then whole-time directors, promoters, and group firms get debarred from accessing the securities market for 10 years from the date of compulsory delisting. Promoters of the delisted companies are required to purchase the shares from public shareholders as per the fair value determined by an independent valuer.