Participating in the stock exchange is a common way for businesses to acquire funds and have their company’s worth established. It is perfectly normal for firms to list themselves out when their objectives have been met. Delisting oneself from the stock market can help a business become more flexible and private. Knowing the process of delisting can be beneficial to firms that are seeking to be less public and more independent in the future.
What is Delisting? Delisting is the process of removing a company’s stock trading privileges from being publicly traded in the stock exchange. This usually happens when the firm fails to comply with requirements stated by stock exchange regulatory bodies. However, firms may also voluntarily choose to delist themselves when those rules have been met and their objectives have been accomplished.
Forms of Delisting Delisting has three levels of severity. Temporary delisting is when a company’s stock are removed from the exchange for a period of time. Administrative delisting is when trading of the company’s stocks ceases as a punishment for not fulfilling stock regulatory rules. The last form is voluntary delisting, where the firm, upon mutually agreed terms, is granted the privilege to remove itself from the stock exchange.
Process of Delisting Depending on the type of delisting, the process may vary. However, the steps are generally the same. First, the company will notify the stock exchange of its intentions to delist its stocks. The exchange will then contact their stock regulatory bodies to check if the firm is eligible to be delisted. If the company is found suitable, the exchange will issue the delisting. The company will then delete its stock from the exchange’s records and inform their shareholders.
Effects of Delisting After a company is delisted, there will be several effects. Firstly, trading privileges of the firm’s stocks will be revoked, reducing their value as they are no longer being publicly traded. Secondly, the company will be less visible in the public realm and can manage itself without being significantly affected by stock regulations. Last but not least, share prices of the firm will increase and become more stable, as they are not subjected to the limitations of the stock exchange.
Benefits of Delisting
Delisting a company has its advantages. Without being subject to the stock market, businesses will gain more financial freedom and control, as well as less visibility in the public eye. This will give them more opportunities to explore ways to increase their profits and keep their shares at a steadying rate, regardless of any external factors.
Additionally, delisting from the stock exchange makes it easier for firms to decide on their management style, structure, and budgeting since regulatory restrictions imposed by stock exchanges will be lifted. This could be possibly beneficial for some businesses that need to focus on their core competencies.
Finally, with the removal of their stocks from the stock exchange, the process of receiving foreign investments will be a lot easier. With this process done, companies are able to manage their finances in a much more efficient way without interference from regulatory bodies.
Risks of Delisting
While delisting a company has its advantages, it also carries certain risks. If a business choosing to delist their stocks do not manage their finances properly and accurately, investors may be turned off and sales will eventually decline.
This can also be a great challenge to a company that has publically announced their intentions of delisting. As the process could take more time than expected, the company will most likely have to update their shareholders regularly. As with any company-related news, there are chances of criticism and backlash which can have a negative effect on the business.
Furthermore, companies that delist their stocks may have difficulty when it comes to acquiring foreign investments, since their stocks are not publicly traded. This could be beneficial for some companies but for those seeking additional funding will most likely have to look for alternative methods.
Prerequisites of Delisting
Before delisting a company, there are a few prerequisites to follow. Firstly, the firm should be aware of all the regulations imposed by the stock exchange and make sure that they are not violating any rules as this could lead to hefty punishments. Moreover, certain financial statements must also be prepared in order to reach the delisting function.
Apart from the documents, companies should also be aware of the laws and regulations imposed by their stock exchange. Any violations or non-compliance with the rules could lead to serious repercussions, even if the firm is voluntarily delisting itself. Therefore, companies should always double-check their intentions before releasing a delisting statement.
Re-listing a Company
Businesses that have been delisted from the exchange may have to go through the process of re-listing in order for their stocks to be made publicly traded again. It is generally the same as the original delisting process; however, some more requirements have to be fulfilled with eligibility tests from stock exchange regulating bodies. They have to make sure that the company is fit to re-list itself in the stock exchange, free from any violations or wrongdoing.
Prior to re-listing a company, businesses must also provide all the necessary documentation and statements to prove their credibility and ability to be re-listed. Any falsified documents could lead to possible punishments, or they may choose to discard the company’s request altogether.
Provided that the company is successful in all the eligibility tests, they will then be able to re-list their stocks in the stock exchange and be made publicly traded once more. Companies that have been successfully re-listed will be able to gain their financial freedom once more, allowing them to be managing their stock prices in a much more efficient way.
