Even if you are a new participant in the stock market, the process of buying and selling shares of listed companies is quite well known. This process has been automated and simplified to such a great degree that it takes mere seconds to execute a trade. But is it the same in the case of unlisted companies? If you have shares in an unlisted company and want to liquidate it, how do you do it? Do you have the same question? Well, then you are at the right place. Check out this blog to know how to sell shares of unlisted companies.
Let us begin with the basics, the meaning of unlisted shares. Unlisted shares refer to shares of a company that are not traded on a public stock exchange like the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE) in India. These shares are typically privately held and are not available for purchase by the general public through the stock market. Instead, they are usually bought and sold through private transactions between investors and the company or existing shareholders. Unlisted shares can offer investment opportunities, but they are considered riskier than shares of publicly traded companies because they lack the transparency and regulatory oversight associated with listed companies.
Unlisted shares in India are regulated by the Securities and Exchange Board of India (SEBI) and the Ministry of Corporate Affairs (MCA) to ensure compliance with various securities laws and regulations, including those related to private placements and shareholder disclosures.
The unlisted shares can be classified into IPO-bound shares and shares of non-IPO companies. Shares of private companies which are pre-IPO are traded on unlisted markets and bought and sold before they go public. These shares become tradable after the company’s IPO, however, they are usually subject to a lock-in period for early investors. It can be similar to a venture capital market, where shares held by companies or individuals are traded and attract many brokers. On the other hand, stocks of companies not planning an IPO soon can be less liquid and less known to the public. Information about these firms is limited as the financial updates are typically available on an annual basis. This market is usually suitable for investors with deep pockets and a long-term investment horizon as well as those seeking early-stage growth opportunities.
In order to sell unlisted shares, the primary requirement is to find a reputed authorised dealer. To initiate the sale, individuals must furnish proof such as a Demat account and Client Master Report (CMR). The shares are then transferred to the buyer’s Demat account, with payment typically received on the same day. When looking to purchase unlisted and pre-IPO shares, obtaining a copy of the CMR is essential, as it contains crucial details. This information can be requested by sending an email to the broker, and it is usually delivered within a few hours. For the smooth transfer of shares, individuals are required to have a DIS Slip and PAN Card, and identity verification is facilitated using the Aadhar Card.
The process of selling unlisted shares can be either through an online or offline process. This process is explained in detail hereunder.
How to sell shares of unlisted companies through an online process
The online process for selling unlisted shares through CDSL is given below.
- CDSL offers an online platform known as EASIEST for share transfers held within their system.
- The registration procedure for this platform can be accessed at the following link: https://web.cdslindia.com/myeasi/Home/Login.
- It’s important to note that CDSL EASIEST exclusively permits share transactions to verified Demat accounts.
- Therefore, it is advisable to ensure that the Demat account is verified and added before initiating any share transfer through CDSL EASIEST.
How to sell shares of unlisted companies through an offline process
The offline process for selling unlisted shares on NSDL and CDSL is given below.
- Off-market share transfers from NSDL or CDSL depositories can be managed using the offline procedure.
- The process requires completing a DIS form, known as the Delivery Instruction Slip.
- This form should contain specific information, such as the ISIN number of the shares intended for transfer, the name of the company (security), and the DP ID of the receiving account.
- Once the DIS form is duly filled out, individuals should proceed to submit the necessary paperwork at the former broker’s office.
The sale of unlisted shares is subject to capital gains tax as per the provisions of the Income Tax Act, 1961. Capital gains tax is levied based on the holding period of such unlisted shares and is not subject to STT (Securities Transaction Tax) as these shares are not listed on recognised stock exchanges. The tax treatment on the sale of unlisted shares is tabled below.
|Capital Gain||Period of holding||Tax rate|
|Short-term capital gain on sale of unlisted shares||Up to 24 months||Taxed according to the individual’s applicable income tax slab rates.|
|Long-term capital gain on sale of unlisted shares||More than 24 months||20% with the benefit of indexation|
The buying and selling of listed shares has been gaining huge importance with the increasing participation of retail investors over the years. Similarly, there has also been a consistent increase of participants in the unlisted shares market, especially from the growing HNIs in the country. However, the risk involved in the sale of unlisted shares is quite high due to the markets not being as regulated as that of listed shares and the limited availability of financial information on the companies. Therefore, it is important for investors to carry out due diligence before entering into the transactions of buying or selling unlisted shares.