Beyond the official stock exchanges, a sizable stock market operates continuously. The market for unlisted shares is located here. You can read all the important information about unlisted shares and unlisted stock exchange in this article. Over-the-counter (OTC) trading occurs for shares that are not publicly traded.
Unlisted shares: what are they?
Stocks and shares not traded on recognized stock exchanges are referred to as unlisted shares. OLA and JIO, for instance, both have unlisted shares. Similarly, many companies have not yet gone public because they do not meet the requirements to be listed on a recognized stock exchange.
Unlisted shares are riskier since they are less liquid than public shares due to their non-listing. While being less open, their valuations are more reliable. So, your returns from that share can be much increased if you can choose an unlisted share that has the potential to be listed and the firm has development potential. To get benefits, trade unlisted shares that have the potential to be listed.
An Unlisted Company: What Is It?
A corporation is considered unlisted if none of its securities are listed on any recognized stock exchange. A public firm is considered unlisted if it is not listed on any stock exchange. Tata Technology, as an illustration.
Similarly, unlisted private companies are private businesses without any listed securities.
Valuing unlisted shares
Shares that are not traded publicly are appraised using the fair market value (FMV) method. The underwriters or the investment bankers determine FMV for unlisted shares because there is no true market price for them as they are not traded on a stock exchange.
The book value of all the company’s liabilities (L) is subtracted from the book value of all the company’s assets (A) to determine the fair market value. The sum derived is then multiplied by the PV of equity shares and divided by the total PE of paid-up equity share capital as shown on the company’s balance sheet.
Because unlisted shares differ from listed shares, so do the tax ramifications. Unlisted securities are subject to earnings’ short-term capital gain tax, if sold within 24 months, the price will be subject to marginal tax rates. If it is sold after 24 months, however, the long-term capital gain tax will be charged at a rate of 20%, and you will also benefit from indexation. However, until the shares are listed on a recognized stock market, the profits are determined using FMV.
The tax implications will be the same as listed equity shares only once and if the unlisted shares you bought are listed on the stock exchange, this, in the absence of indexation, would result in long-term capital gain tax at a rate of 10% on gains above Rs. 1 lakh.
You might find that hidden gem if you choose the right unlisted shares. There is a chance that investors will see exponential gains. The two most important considerations when selecting an unlisted stock are the company’s fundamentals and the intermediary you’ll use to buy the shares.
As choosing a trustworthy intermediary is crucial when investing in unlisted shares, Tata Capital Wealth has been offering services relating to unlisted shares.