To begin with, let us understand what listed and unlisted companies are. A listed company is one whose shares are traded on a stock exchange. In India, the two most popular stock exchanges are the NSE (National Stock Exchange) and the BSE (Bombay Stock Exchange). Every exchange has its own requirements for listings.
These can include minimum stockholder’s equity, a minimum share price, and a minimum number of shareholders. Requirements such as these are put in place to ensure that only high-quality securities are traded and to increase the trust level among the investors of the exchange.
For businesses, the primary goal of going public is twofold: not only can they get financial aid via bank loans, but they can also reduce their debt. To sell their shares to the public, a private corporation has to file with a stock exchange. Their shares, in turn, become listed shares.
It it not necessary that a public company has to be listed. Any public corporation that is not listed on the stock exchange is called an unlisted company. The shares of these companies are called unlisted shares. They are not traded on an exchange, but through an over-the-counter (OTC) market like Unlistedkart. There are plenty of reasons for a company to remain unlisted. These include being too small for a stock exchange listing, having too few shareholders, or to avoid exchange regulations.
In this blog post, we will be going over the 5 differences between listed and unlisted shares.
A listed company’s shares are openly tradable since they are on the stock exchange. Unlisted shares are traded over-the-counter.
Listed shares are continuously traded as and when the securities exchange is open. Unlisted share trading is irregular and is dependent on private transactions.
Because of the nature of private and public markets, these listed and unlisted hares are subject to different levels of liquidity risk. Exchange-traded markets are open for a wider range of investors including individual and institution investors. Since this involves a large number of traders and low, efficient transaction processes, liquidity risk in these markets is considered to be small.
In contrast, the unlisted share market is mostly dominated by institutional investors (and a few significant private investors) and the transactions among them (often in large volumes) are generally slower and cannot be made until two parties reach full agreement, which may include other terms than just price and volume. Therefore, unlisted shares are illiquid.
The valuation of a company that is listed can be calculated easily and its market value can be determined just as conveniently. With unlisted shares, because the stock price is unavailable, the company’s valuation is sometimes uncertain. Only the share value of a proxy traded firm can be used to arrive at acceptable market value.
Listed shares have to conform to strict regulatory requirements set by exchanges. Unlisted shares have fewer and less complicated regulatory requirements to follow through.