Delisting Regulations for equity shares

DELISTING REGULATIONS FOR EQUITY SHARES

The Securities and Exchange Board of India (“SEBI”), issued a notification dated June 10, 2009 on delisting of equity shares from stock markets through the SEBI (Delisting of Equity Shares) Regulations, 2009 (“2009 Regulations”).

These Regulations came into force with immediate effect and cover additional grounds from the pre-existing delisting regulations of 2003 (“2003 Regulations”).

Delisting essentially takes place when the securities of a publicly traded company are removed on account of certain reasons from the stock exchange where they are listed, and are broadly categorized as voluntary or compulsory delisting. The reasons for delisting are very company specific and cannot be generalized.

The 2009 Regulations have brought about some radical changes compared to the 2003 Regulations. Now, delisting will not be allowed against any preferential allotment made by a company nor will a promoter be allowed to use the funds of the company to finance an exit option.

Even for a voluntary delisting of equity shares with an exit option, a shareholders’ meeting has to be conducted through postal ballot and the resolution is to be acted upon only if the votes of the public shareholders in favour of the proposal is twice the number of votes against it.

This is vastly different from the 2003 Regulations wherein only a special resolution had to be passed for a voluntary delisting.

In case of a compulsory delisting, the 2009 Regulations provide that the company, its whole-time directors, its promoters and any other companies promoted by them, will not be able to list equity shares in any recognized stock market for a period of ten years from the date of delisting.

As per the 2003 Regulations, reinstatement of delisted securities could be done after a cooling period of two years itself.

New provisions for “small companies” have also been added to the 2009 Regulations. Small companies have been defined as those companies having a paid-up capital of INR 10 million (US $ 200,000 approximately) or less and whose shares have not been traded for the past one year on any recognized stock exchange.

If the paid-up capital is more than INR 10 million (US $ 200,000 approximately), it should have less than three hundred shareholders to derive benefits of a “small company.”

Such “small companies” can get their equity shares delisted without following the lengthy procedure specified in the 2009 Regulations for other companies.

The 2009 Regulations appear to have brought more structure to the process of delisting of equity shares.

An in-depth analysis of these regulations and its comparison with the 2003 Regulations will be discussed in detail in our forthcoming Capital Market Bulletin.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact: singh@carajput.com or call at 9555555480

 

Rajput Jain & Associates

Rajput Jain & Associates is a Chartered Accountants firm, with it's headquarter situated at New Delhi (the capital of India). The firm has been set up by a group of young, enthusiastic, highly skilled and motivated professionals who have taken experience from top consulting firms and are extensively experienced in their chosen fields has providing a wide array of Accounting, Auditing, Taxation, Assurance and Business advisory services to various clients and their stakeholders. Rajput jain & Associates, a professional firm, offers its clients a full range of services, To serve better and to bring bucket of services under one roof, the firm has merged with it various Chartered Accountancy firms pioneer in diversified fields. We have associates all over India in big cities. All our offices are well equipped with latest technological support with updated reference materials. We have a large team of professionals other than our Core Team members to meet the requirements of our prospective clients including the existing ones. However, considering our commitment towards high quality services to our clients, our team keeps on growing with more and more associates having strong professional background with good exposure in the related areas of responsibility.

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