Difference Between Listed And Unlisted Companies

Companies can be categorized in several ways, with one such basis being the listing of their securities. A listed company trades its securities on a stock exchange, allowing it to raise capital from many investors. On the other hand, an unlisted company is not traded on a stock exchange and typically has a limited number of investors.

Investing in listed and unlisted companies can offer varying levels of risk and potential returns. Thus, understanding the differences between the two types of companies is crucial for making informed investment decisions.

This blog provides comprehensive guidance on the meaning of listed and unlisted companies, the available investment options, and their key differences.

What Is A Listed Company?

As defined in the Companies Act 2013 [Section 2 (52)], a listed company is a business entity with any of its securities (stocks, debentures, etc.) listed on a recognized stock exchange. These companies must comply with the listing regulations set forth by the respective stock exchange they are listed on.

Several notable examples of listed companies in India include Reliance Industries Limited, HDFC Bank, Infosys Limited, Bharti Airtel Limited, Tata Consultancy Services, and many more.

These companies have their securities listed on the Bombay Stock Exchange (BSE) or National Stock Exchange. Additionally, being listed on a stock exchange allows these companies to raise funds by selling their shares to the public.

How To Invest In a Listed Company?

Direct equity investments

You can invest in listed shares if you have a Demat and trading account with a SEBI-registered stockbroker. You must select the stock, feed the quantity of shares to buy, and push the order through your trading account. Once purchased, these shares get stored in your Demat account. These shares give you partial ownership in the listed company.

Mutual funds

Investors can also invest in listed securities through mutual funds, which involve collecting funds from multiple investors. Professional fund managers manage mutual funds and can invest in stocks, bonds, money market securities, and other financial instruments.

WealthBaskets

SEBI-registered professionals build WealthBaskets, a collection of stocks and ETFs based on specific ideas, themes, or strategies supported by research. You can invest in listed companies by buying WealthBaskets.

Index funds

Index funds track the performance of a specific market index by holding representative listed securities as underlying instruments. They offer broad market exposure and are less expensive than actively managed funds. Examples of popular indexes for which index funds are available include the Nifty 50 in India and the S&P 500 in the United States.

Exchange-traded funds (ETFs)

ETF stands for Exchange-Traded Fund, which is an investment fund that is traded on a stock exchange. It tracks the performance of a specific index, commodity, or basket of assets and provides exposure to a diverse range of markets and asset classes.

What Is An Unlisted Company?

A company whose securities are not listed on any recognized stock exchange can be considered as an unlisted company. There are two types of unlisted companies.

Unlisted Public Company: An unlisted public company refers to a public company that does not have its securities listed on any stock exchange. Example: Tata Technologies is an unlisted public company.
Unlisted Private Company: A private company whose securities are not listed on any stock exchange is called an unlisted private company. Example: Swiggy, RazorPay, Oyo, etc, are unlisted public companies.

How To Invest In An Unlisted Company?

Through the purchase of ESOPs

Companies may offer their employees stock options through an Employee Stock Ownership Plan (ESOP), allowing them to acquire a stake in the company at a nominal rate. Once the employer has vested these shares to employees, they can sell these shares.

If you are interested in investing in unlisted companies in India, your broker can help you connect with employees willing to sell their shares at a specific price. This allows you to invest in some of the top unlisted companies in India.

Through private placements

Occasionally, some businesses may choose to conduct a private offering and sell their shares to a restricted group of investors. These investors may be introduced to the company promoters by intermediaries such as brokers, investment banks, or wealth managers, enabling them to purchase the company’s shares as private investors.

Through PMS and AIF schemes

Customized investment portfolios comprising of various securities are provided by Portfolio Management Services (PMS), which continuously rebalance portfolios in response to market sentiments, reducing risks and maximizing returns.

Alternative Investment Funds (AIFs), on the other hand, are relatively new investment vehicles that collect funds from high-net-worth individuals and institutions to invest in alternative investment opportunities.

As part of their investment strategies, both PMS and AIFs can invest in shares of unlisted companies. By investing in them, your portfolio can also get exposure to unlisted stocks.

Investing in pre-IPO funds

Pre-IPO funds operate like mutual funds but allocate their investments towards privately held firms that intend to become publicly traded within three to five years. Investors participating in these funds stand to gain substantially if the companies perform well after their initial public offering.

Know More About Unlisted Shares

Key Differences Between Listed And Unlisted Companies

Let’s understand a few differences between listed and unlisted companies:

Basis	Listed Company	Unlisted Company
Ownership	Publicly traded, anyone can buy or sell	Owned by a small group or private investors
Regulation	Subject to strict regulations by SEBI (Securities and Exchange Board of India)	May have fewer guidelines to follow.
Market Liquidity	Shares can be easily traded on the market	Shares are not publicly traded and lack market liquidity
Financial Reporting	Regularly share financial information for transparency	More privacy, not obliged to share detailed financial reports
Market Valuation	Determined by market forces on the stock exchange	Based on internal assessments or negotiations between parties
Risk & Return	Lower risk and fewer opportunities for exceptional returns.	Relatively higher risk but greater potential for exceptional returns.
Transparency	Transparent in operations and decisions, facing scrutiny from shareholders	More privacy in operations and decisions

Final Thoughts

In summary, the distinction between listed and unlisted companies lies in their publicly traded securities, and investing in listed securities may be less risky due to regulatory compliance. Nonetheless, unlisted companies could provide higher returns but with greater risk. Therefore, it is crucial to consider your investment goals before making any investment decision.

FAQs

Are private companies listed or unlisted?

Companies that have debt securities listed on a recognized stock exchange are categorized as listed companies, even if they are privately held. On the other hand, private companies without any securities listed on the stock exchange are considered unlisted.

How to know the share price of an unlisted company?

If you have a connection with the promoter/promoters of a company, you can find out the share price of the particular unlisted company. Some online websites, such as UnlistedZone and UnlistedDeal, also provide information on their share prices.

Can you sell unlisted shares?

Through the Over-the-counter market or with the help of intermediaries, shares of unlisted companies can be sold.

Is an unlisted company good?

Unlisted companies may have the potential to offer great returns, though at a higher risk due to lesser regulations.

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