Difference Between Listed and Unlisted Company

Basically, there are two basic types of companies i.e. listed and unlisted companies. Both share the same goal of profit maximization, but there are many key differences between them.

Other than size, structure, and way of raising capital, their ownership is the fundamental difference between both. While the listed companies are owned by many shareholders, non-listed or unlisted companies are owned by private investors.

Listed Company

A company to be listed on the stock exchange will be considered a listed company. Someone can freely trade its shares on the stock exchange, and investors can buy and sell shares at their discretion. Such investors after purchasing the shares become shareholders of the company. 

A company has the option to be listed on the main market (for bigger and established companies) of the stock exchange or in the alternative investment market (for relatively new companies).

A board of directors appointed by shareholders takes all the decisions of a listed company. This board consists of both executive and non-executive directors. Various corporate governance requirements often specify and govern board creations.

All the decisions made by boards need to be shared with shareholders in a timely manner, and board resolutions should be passed in making some important decisions. Shareholders are entitled to two types of returns by investing in a listed company.

Dividends

Dividends is money paid by a company at regular intervals from its profit to its shareholders. While some shareholders prefer to cash in dividends, others choose to reinvest their part into a business known as the dividend reinvestment concept.

Capital Gains

Capital gain is defined as the net profit that an investor makes after selling capital/investment for more than the purchase price of the property. The entire value earned from selling a capital asset will be considered as taxable income.

There are various rules and regulations listed companies are liable to follow along with some definite requirements to fulfill in terms of preparation of financial statements.

There are standard formats for major financial statements which include a statement of financial position, income statement, statement of cash flows, and statement of change in equity. Further, these statements must have to be prepared and submitted in accordance with the Generally accepted accounting principles (GAAP).

The Sarbanes-Oxley Act 2002 is an important regulatory act developed especially for the reporting and disclosure requirements of listed companies, and it protects the interests of investors.

During the last few decades, such regulatory acts remained consistently strict because of large corporate scandals such as Enron (2001) and WorldCom (2002)

Unlisted Company

Companies that are not listed on the stock exchanges are known as unlisted companies. We also know these companies as privately held companies. As they are not listed on the stock exchange thus they can’t raise finance through share offers to public investors. Meanwhile, they can issue shares to well-known parties such as family and friends to increase equity.

Shares are traded "over the counter", where the specifics of the deal can be tailored to the requirements of the parties (buyers and sellers) involved; Thus, the exchange of control doesn’t take place in the case of an Unlisted company. Unlisted companies have better control over their business functions.

Listing on the stock exchange is not mandatory for a company to be successful. Unlisted companies also have some benefits, as financial results reporting requirements are not subject to strict rules, thus being flexible and less complex.

Difference between Listed and Unlisted Company?

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Find Out Step-by-step Guide About Transfer of Shares in India

It is common for shareholders in small & private companies to often dilute or transfer their equity stake to another person. This usually happens when either the stakeholder is ill or he wants to transfer shares to a family member. This is when the transfer of shares takes place.

The Companies Act, 2013 specifies a proper procedure for the transfer of shares. It also prohibits any company to Register and Share Transfer Agent of its shares without the execution of the proper instrument and unless the requisite stamp duty is paid and details of the Transferee & Transferor are provided.

Here you can read about the detailed process along with compliance for the transfer of shares for private companies.

How Transfer of Share Works

To start with the transfer of shares, the respective party must first acquire the form SH-4 for Share Transfer Deed. The details of time, date, no. of shares, name of transferor & transferee, amount of consideration, address, occupation, distinctive no. of shares, etc. must be furnished in the form. The Share Transfer Deed or Instrument is then executed and stamped properly.

In the next step, both the share transferor and transferee are required to prepare their respective sale/purchase invoices and submit the same along with their share transfer application to the Board of Directors of the company.

The Board of Directors will then conduct a board meeting to decide on and approve/reject the registration of transfer of shares. If approved, requisite entries in registers and certificates will be made to complete the transfer.

Time Frame for Execution & Delivery of Share Transfer Instrument to Company

Section 59 of the Companies Act, 2013 specifies the time limit for the execution and delivery of the Share Transfer Instrument, along with share certificates for transfer, to the company as a period of 60 days from the date of execution. In short, the Deed must be submitted to the company within 60 days from the date it was executed.

What to do If The Instrument of Transfer is Lost Post-execution and Before Delivery to The Company?

In the case when the Instrument of transfer is lost after execution or could not be submitted to the company within 60 days, Section 56 of the Companies Act allows the company to register the transfer of shares on the grounds of indemnity on such terms as the board finds suitable.

However, if the instrument of transfer is not submitted to the Company because of the death of Subscriber, the company board is required to register the transfer and must transmit the said shares to the legal heir or nominee of the subscriber.

Read also: Do You Really Know About Difference Between Share Transmission & Share Transfer? 

Stamp Duty Fee on Transfer of Shares

The stamp duty fee for the transfer of shares is fixed at 0.25% of the total consideration amount. The applicant must purchase the court fee stamp of the said amount and paste the same on his/her application. The fee is fixed irrespective of the state of the applicant/company.

Transfer of Partly Paid-up Shares

In case if a person wishes to transfer partly paid-up shares, the transferor himself/herself has to furnish an application with the company. The company will then send a notice to the transferee for acquiring a ‘No Objection Certificate’ to complete the transfer.

If the transferee sends his/her reply within 2 weeks of receipt of the notice and shows no objection to the transfer of shares, only then the company can process the application and approve the transfer.

Step-by-step Procedure for Transfer of Shares in Depository System

Here’s the procedure to request for transfer of shares by depository:

1. The transferor has to make a request and provide delivery instructions to the Depository Participant No. 1 (DP1) to transfer the shares as well as debit the transferor account against the shares from clearing member 1 pool account with DP1. Upon receiving this request, the clearing member-1 pool sends a receipt instruction to DP1, instructing it to accept the Share Transfer Agent in his/her account. Finally, the securities are transferred from the transferor account to the clearing member 1 pool account with DP1.
2. The clearing member 1 then instructs the Clearing Corporation (CC) to debit his Clearing Member 1 Pool account and credit the securities to his Clearing Member 1 Delivery account. The transfer of securities will take on the date of execution as mentioned in the instruction.
3. Until the settlement, the securities remain in the clearing member 1 delivery account. On the settlement day, the securities in the clearing member 1 delivery account are automatically transferred to the Clearing Corporation account.
4. Now, the securities automatically transfer from the Clearing Corporation account to the Clearing member 2 receipt account with DP2, with no instruction required to be set up.
5. After that, the securities are transferred from the receipt account of Clearing Member 2 to his/her pool account.
6. Clearing Member 2 then instructs Delivery Partner 2 to debit his pool account and credit the securities to the buying client account maintained with DP 2. The buyer at the same time gives a receipt instruction to DP 2 to accept securities in his account.
7. The securities are then transferred from the clearing member 2 pool account to the buyer’s account maintained with DP 2.

Note: No stamp duty is levied in case of transfer of shares in DEMAT form.

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