Can unlisted shares be traded?

Namaste peeps. Hope ya’ll are doing well. Today, I’ve got one simple question for you. 

“What did the stock say to the bond at the investment party?

 "You're so boring; you never appreciate a little risk and return!"

Now it's up to us whether to choose a boring bond or an exciting share. 

Since we are on the topic of unlisted shares, let's get to know what they are in short, How they are traded, and if investing in them is marginal.

Unlisted shares are like owning a part of a company that's not on the stock market. They're not easy to buy or sell, and figuring out how much they're worth can be tricky. But they can offer unique opportunities and potentially higher returns.

Now let’s see what is trading of unlisted shares and how it happens. 

Trading unlisted shares involves a process of buying and selling ownership stakes in companies that are not publicly traded on stock exchanges. To know platforms where you can buy and sell your unlisted shares. See How to buy and sell unlisted shares.

Let’s just go through an overview of the process of trading these unlisted shares.

1. Identification of Buyer and Seller: The process begins when a potential buyer expresses interest in purchasing unlisted shares and identifies a willing seller for those unlisted shares. This identification can occur through personal networks, financial advisors, brokers, or specialized platforms like Precize for unlisted shares. 

2. Negotiation: The buyer and seller negotiate the terms of the share transaction. This negotiation includes discussions on the price per share, the total quantity of shares to be bought or sold, any conditions or contingencies, and the timing of the transaction. This phase can involve back-and-forth discussions until both parties agree on the terms.

3. Due Diligence: Both the buyer and seller typically conduct due diligence to assess the financial health of the company whose unlisted shares are being traded. Due diligence involves reviewing the company's financial statements, legal status, potential risks, and existing shareholder agreements. This step is essential to ensure that the shares are accurately represented, free from encumbrances or legal issues, and have clear ownership.

4. Agreement and Documentation: Once the negotiations are finalized, the parties involved formalize the transaction through a legally binding agreement or contract. This agreement outlines the terms and conditions of these share transfers, including the purchase price, payment method, transfer of ownership, and any warranties or representations made by the seller.

5. Unlisted Share Transfer: The seller transfers the shares to the buyer according to the terms of the agreement. This transfer can be done through one of two primary methods:
   
   a. Physical Unlisted Share Certificates: If the shares are in physical certificate form, the seller endorses the certificates to the buyer, and the buyer takes possession of the physical certificates.

   b. Dematerialization: If the unlisted shares have been dematerialized (converted into electronic form), the transfer may involve electronic processes through a central depository or registry.

6. Documentation and Regulatory Compliance: Depending on the jurisdiction and regulatory requirements, the unlisted share transfer may need to be documented with relevant authorities or agencies. This can include notifying the company whose unlisted shares are being traded, recording the transaction with a securities regulator, or complying with specific reporting obligations.

7. Payment: The buyer provides the agreed-upon payment to the seller, completing the financial aspect of the transaction. Payment is typically made through methods outlined in the agreement, such as bank transfers or escrow services.

8. Post-Transaction Formalities: After the unlisted share transfer is completed, both parties may engage in post-transaction formalities, such as updating company records, issuing new unlisted share certificates (if applicable), and updating shareholder records with the company.

Are unlisted shares marginal?

If we talk about the above article, investors are rushing to buy unlisted stocks that have higher chances of being listed. Investments in unlisted shares have increased up to 15 to 40%. For example, take a look at Tata Technologies; the investments in these shares have taken a ladder as it has a high chance of being listed. The unlisted share price of this company as of 5/10/2023 is Rs 947. Over the past period, the investment returns on unlisted shares have gone up 70-90%. 

This is a perfect example to witness higher returns on investments. Investing wisely by doing thorough research and making informed decisions can increase the chance of earning more money on your investments. It helps you understand and manage risks, find good opportunities, choose the right time to invest, spread your money across different options, avoid emotional mistakes, and stay patient for long-term growth. 

Hope this article cleared up all the questions you had regarding investments of unlisted shares and margin from them. Stay tuned to unwrap another question in the next blog.