What Happens When a Stock Is Delisted?

Do you know what happens when a stock is delisted? A stock is said to be "delisted" when taken off a stock exchange. This can be something the company does on its own, or the exchange does on its own.

A company can delist its stock to reach a strategic goal, but companies are often forced off a stock exchange. This is because their stock no longer meets certain minimum requirements. 

Delisting can happen if the price of a stock stays below $1 per share for a long time. It can be either good or bad for stocks. Investors should know how the company is doing financially to decide what to do after the stock is delisted from the market.

What does it mean that a stock is delisted?

When a company wants to join an exchange for the first time, it has to meet certain requirements. It should also keep meeting these requirements if it wants to stay on the exchange. 

A business that doesn't meet these standards could be put on probation. Companies on probation can trade on the exchange for a certain amount of time while they try to fix any problems. 

In some cases, they are marked with a "BC" after the stock symbol to show that they are not meeting exchange rules.

The exchange informs companies that they must follow the rules and usually have ten days to respond. If they don't, the exchange will delist them. That would be an unintentional removal from the list. 

After delisting a stock, it may still be traded over Over-the-Counter (OTC).

When does a stock get delisted?

Many things can cause a stock to be delisted from the market. To stay in compliance, the Nasdaq needs to meet three main requirements:

1. A share price of at least $1

2. At least 400 shareholders

3. Shareholders' equity worth at least $10 million or a market value of at least $50 million or total assets and total revenue of at least $50 million each

Also, companies must tell the Securities and Exchange Commission (SEC) as soon as possible about any important news, file quarterly and annual reports on time, and meet several other ongoing corporate governance requirements. 

If the company doesn't meet the requirements, its stock can remove from the exchange.

Companies can also choose to drop off the list. That happens when they are taken private or merged with another publicly traded company. 

The company may move its stock to a different exchange or even dissolve, liquidating its assets and paying out the proceeds to shareholders.

What is meant by a voluntary delisting?

In voluntary delisting, the company decides to get off the exchange. Most of the time, the company will still trade, but it will do so in over-the-counter markets. A company may decide to delist for several reasons:

1. Cost reduction: following rules and regulations have real costs. When a company decides that there is no longer any financial benefit to being on the stock market, this is called voluntary delisting.

2. A buyout: In a buyout, the person or group that buys the company usually takes it private. Entities that buy companies can be private equity or larger companies that will buy most or all of the company's stock.

3. Faster decision-making: Companies can make decisions faster if they delist and go private.

How does delisting work?

Companies must meet specific "listing standards" guidelines before they can be listed on a stock exchange. Each stock exchange, such as the New York Stock Exchange (NYSE), establishes its rules and regulations for listings. 

If a company doesn't meet the minimum standards set by an exchange, it can choose to be delisted from the list. Price is the most common measure. 

For example, a company whose share price has been less than $1 per share for a few months may be at risk of being delisted from the stock market. A company can also ask to be delisted from the list.

Some companies decide to go private when they do a cost-benefit analysis and find that the costs of being on the stock market outweigh the benefits. 

Companies bought by private equity firms and will be reorganized by the new shareholders often ask to be taken off the stock market. These companies can ask to be taken off the stock market and start trading privately. 

Also, when two listed companies merge and start trading as new companies, the companies that used to be separate ask to be delisted from the list.

What happens When a Stock is delisted?

If you own shares in a company that gets taken off the market, you can't sell them on NSE or BSE. But you can sell your shares of stock in places other than stock exchanges. 

Read on to learn how you can sell your shares and get your money back in both of the above types of delisting.

When it comes to voluntary delisting

When a company voluntarily goes off the stock market, you have two ways to sell your shares.

a. Turn the process of making a book around

By making a public announcement, the company's backers offer to buy back the shares. They must send the offer letter and a bidding form to the eligible shareholders. You can sell your shares as a shareholder by making a buyback request.

When a company decides to delist because of an expansion or merger, there is a chance that it will offer a buyback at a higher price. 

You can make much money as a shareholder by choosing a higher-price buyback. 

You should know that the company will be delisted from the stock market only when the promoters own 90% of the company's total shares after buying back shares from the public.

b. Over-the-counter

If you haven't sold the shares through reverse book building, you can keep them until you find a buyer on the over-the-counter market. 

But you should know that it will be hard to sell the delisted shares because only some people want to buy them. 

So, if you want to sell on the over-the-counter market, you must be very patient. This is because it may take a long time to find a buyer willing to buy your shares at the price you want.

In the case of involuntary removal

In this case, the promoters will have to buy back the shares at the price that an evaluator has already decided on. 

For involuntary delisting, your ownership of the shares doesn't change, but the value of your shares might go down. 

So, traders and investors usually sell their shares when a company announces a buyback.

Example of delisted stock 

One company that has been delisted, relisted, and then delisted again is Burger King. In 2010, the fast-food chain took itself off the New York Stock Exchange. 

This delisting happened because 3G Capital bought the company privately. The private company was relisted on the stock market two years later and traded for a while before merging with the Tim Hortons coffee shop chain. 

The merger made Restaurant Brands International (QSR) a new company on the Toronto Stock Exchange.

Can a delisted stock be relisted?

Even though it doesn't happen often, it is possible for a stock that was taken off a major exchange to be put back on it later. 

To do this, the company would have to fix all of the problems that caused it to be taken off the stock market in the first place. The company needs to keep it from going bankrupt and file all the paperwork to get back into compliance.

How long does it take to delist a stock?

If a company doesn't meet the minimum requirements for listing, it can be taken off the exchange where it trades. 

On the New York Stock Exchange (NYSE), companies have ten days to answer a letter from the exchange. If you don't respond, there are chances of getting delisted.

Each case is different, but the process can take anywhere from one to seven months.

What happens to the shareholders when a stock is delisted?

If a stock is delisted from the stock exchange, shares may still be traded on the OTC bulletin board (or possibly on an overseas market). Shareholders can still trade the stock, but the market is likely less liquid.

Shareholders should carefully look at stocks that have been delisted from the exchange. This could mean the company has money problems and may soon go bankrupt.

If the stock is no longer traded on the public market, shareholders may be bought out or have their shares restructured to participate in the company's private equity holdings. 

When a company goes public to private, shareholders sometimes have warrants, bonds, and shares.

How do you know if a stock has been delisted from the market?

The major exchanges will let the companies know they need to meet certain compliance issues to keep from being delisted. 

You can find these notices on the exchanges' websites and even in press releases from the company.

Along with the notice, the company may also release a statement saying they are working with the exchange to meet their requirements and make investors happy. 

It usually needs to be clarified when a company is delisted from the list. In some cases, the exchange will give a date by which the company must be delisted. 

The exchanges try to give the underlying companies as much time as possible to avoid delisting since the exchanges will also lose trading volume.

How to sell a delisted stock?

If you know a company could be delisted from the stock market, selling your stock is probably a good idea. 

The events leading up to an involuntary delisting lower a company's value. And if the company goes bankrupt, you may lose your entire investment. 

When a stock is delisted from the market because of a merger or because the company goes private, you have a short time to sell your shares. You must do this before they are turned into cash or traded for the acquiring company's stock at a set rate.

You can still sell your shares when a company trades over the counter. But the bid/ask spreads may be wide. This means there may be few buyers willing to pay your desired price. 

Thus, some brokerages don't allow these kinds of OTC trades. You can usually sell a delisted stock like a stock that trades on an exchange. Even if a company files for bankruptcy, a delisted stock can still be traded over the counter for years.

You should avoid this trap if you think buying delisted stocks is good. Most of the time, these companies are about to go bankrupt or have serious money problems, and they tend to trade like penny stocks.

How to manage your delisted stock?

When shares are delisted, you can't sell them on either the NSE or the BSE. But you still own the shares and can get a cut of the sales outside of stock exchanges. 

Let's find out how to return your money in the two delisting types discussed.

If a person wants to delist from the list

In this type of delisting, the acquirer will use the reverse book-building process to buy the shares from the shareholders. 

All shareholders get a letter from the company's owner telling them about the buyback. The shareholders are also given a form to bid on and an official letter. 

The buyer makes an offer to the shareholders, and if they accept it, they can leave the business. Thus, the investor can also say no to the offer and keep the shares. 

Delisting is successful when the trader buys a certain number of shares. When shareholders can't sell their shares to promoters or acquirers within the given time frame, they must sell them on the over-the-counter market. 

Due to a drop in liquidity, it can be hard and take a long time to sell shares on the over-the-counter market. Shareholders can make a lot of money if they sell their shares to the promoters at a higher price during the buyback window. 

As a shareholder, you have a short-term chance to make money. This is because the price may drop after the buyback window closes.

In the case of a forced delisting

In this case, traders buy the shares back from the shareholders at a price set by a third party. Like voluntary delisting, involuntary delisting doesn't change who owns the shares. 

However, in this case, the company's shares will likely be worth less after delisting.

If the company decides to remove its shares from all Indian stock exchanges except for BSE and NSE, it doesn't have to pay shareholders anything. This is because the shares can still be traded on BSE and NSE. 

Advantages of stock delisting 

Here are the good things about it.

1. No longer on a stock exchange, companies do not have to publish their annual reports or shareholding patterns.

2. There is no longer a minimum listing limit for private firms.

3. The business cut costs, like the listing fee and the cost of trading each year.

4. Hostile takeovers of private companies happen less often.

5. Private firms can't speculate on the market.

6. Directors still have the power to make decisions.

Disadvantages to knowing about stock delisting 

Here are the bad things about it:

1. A private business can't get money from the public market.

2. When a company delists, it can lose public trust, which can cause its market share to drop. It can also hurt the company's book value, and delisted stocks lose a lot of value. Shareholders lose money on their investments.

FAQs: Questions people often ask

How to sell shares that have been delisted from the market?

Stakeholders have an option called "stock buyouts" when companies are delisted by force. Shareholders can sell their shares on over-the-counter markets or the new exchange platform if the security is relisted.

When a stock is delisted from the market, what happens?

Shareholders don't lose their equity even if a company goes out of business. But the stockholders can no longer sell their shares on the open market. If a company is delisted by force, those with a stake in it get an offer to buy their shares.

Can stock that was delisted by the market be brought back?

Companies do sometimes get back on a stock exchange.

Bottom line

When a company's shares are delisted from the stock market, we say that the company has been "delisted." A company can be delisted from the stock market by choice or force. 

You should know that taking your shares off the stock market voluntarily won't always make them worth less, but that taking them off the stock market by force might. 

You can still own them as shareholders, ask for a buyback, or sell shares on the over-the-counter market. After a careful analysis, deciding whether to sell or keep the shares can be profitable and help your investment goals.