An Initial Public Offering (IPO) is a significant event, marking a company’s first listing on the stock exchange and showcasing its financial growth and stability. Delisting, the reverse of this process, involves a company withdrawing its shares from the exchange, often transitioning to private ownership. This article explores how delisting impacts shareholders and its types.
What is the delisting of shares
Delisting occurs when a company removes its shares from stock market trading, effectively ending its status as a listed entity. Once delisted, shares are no longer traded on the exchange, and the company may operate as a private limited organisation. Delisting can occur for various reasons, including failure to meet exchange requirements, and often has notable consequences for both the company and its shareholders.
Reasons for delisting the shares
- Public to private: When a company lists its shares to the general public, it dilutes the ownership of the company owners, who sell a percentage of their shares at the time of IPO. Hence, a company may choose to delist its shares to reverse its identity from that of a public limited company to that of a private limited company.
- Merger: A company may opt to delist its shares if it wants to merge with another company to expand its business or avoid constant losses. In such a case, the current shareholders are offered shares with almost the same value in the merged company.
- Cost reduction: A company must adhere to many listing requirements to continue listing its shares on the stock exchanges, costing them money. To reduce such costs, it may delist the shares.
- Improving corporate governance: Delisting of shares may allow a company to have better control over its business operations, making it easier to ensure effective corporate governance initiatives.
