Based on access to capital, the companies are classified into listed companies and unlisted companies. Every listed company is a public company, but vice versa may not be true. Further, an unlisted company can be a private limited company or a public limited company. For the purpose of trading in the stock market, a company must list its securities in the stock exchange, which implies that the company’s name is registered in the Stock Exchange.
Here, it is to be noted that equity securities of only public companies can be listed on the stock exchange, whereas debt securities of both public companies and private companies can be listed on the stock exchange. Hence, there are a number of private companies in the country whose debt securities are listed on the stock exchange, but they are privately placed.
What is Listing?
Listing implies a process in which the shares of a company are officially traded on the board of the Stock Exchange. Basically, when securities are listed on a stock exchange, they become readily marketable, as they can be freely traded, i.e. purchased and sold between investors on the stock exchange. One should take note of the fact that each stock exchange has a set of listing requirements.
In this post, we will talk about the differences between listed company and unlisted company.
Content: Listed Company Vs Unlisted Company
|Basis for Comparison||Listed Company||Unlisted Company|
|Meaning||A listed company is one that is registered on various recognized stock exchanges within or outside the country and their shares are freely traded on the exchange.||An unlisted company refers to the company which is not listed on the recognized stock exchange and its shares are not freely traded on the exchange.|
|Guidelines||It has to follow guidelines given by SEBI||It has to follow guidelines given by Central Government and MCA|
|Owned by||Many shareholders||Private Investors|
|Liquidity of securities||Highly liquid||Illiquid|
|Valuation of securities||Stock prices are easily available, which depends on the demand and supply forces. Hence, the market value can be easily determined.||Determination of market value is a bit difficult. And so the estimated market value is calculated.|
Definition of Listed Company
When any of the securities of a company are registered on the recognized stock exchange, such a company is called a listed company. The securities of these companies are freely traded among investors.
- The listed companies are required to comply with the specific liquidity requirements of the concerned exchange, in which the securities have been registered.
- For the purpose of listing securities, a company needs to submit an application with the concerned stock exchange. When the securities of the company intending to list, makes it to admission and continuance of the given securities upon the list of the stock exchange, it is termed as a listed company.
A listed company that is looking for listing its securities on the exchange is eligible for issuing a prospectus to invite the general public for subscribing to its shares or debentures. While a listed company makes Further Public Offer (FPO), a company intending to list can make an Initial Public Offer (IPO).
Also Read: Difference Between IPO and FPO
What is a Listing Agreement?
The companies must enter into an agreement, i.e. Listing Agreement with the stock exchange when they get listed. As per the agreement, the companies must file certain compliances and disclosures, stated under the agreement and if the company fails to comply with the same, disciplinary action can be taken against it, which may include suspension or delisting of securities.
Definition of Unlisted Company
Any company which is not a listed company, i.e. the securities of such companies that are not listed on the recognized stock exchange is called the unlisted company. These companies fulfill their capital requirements by sourcing funds from their family members, friends, relatives or by way of the private placement and raising funds from financial institutions. These are not authorized to issue prospectus to invite the general public for the subscription of their securities.
Unlisted companies are not liable to conform to the regulations issued by the SEBI. However, they are required to follow the guidelines provided by the Central Government or Ministry of Corporate Affairs. So, it is the central government or MCA that looks administers the matters of unlisted companies.
Apart from not qualifying for listing, public companies can also opt for remaining unlisted on a stock exchange, for various reasons like:
- When the company is very small in terms of size to be qualified for listing in a stock exchange.
- When the company does not seek investment from the general public.
- When there are only a few shareholders for listing.
Also Read: Difference Between OTC and Exchange
Key Differences Between Listed Company and Unlisted Company
After discussing the meaning of the two, we are going to talk about the difference between a listed company and an unlisted company:
- A company is said to be listed when it has issued securities to the public that are quoted on one or more recognized stock exchanges. On the other hand, an unlisted company is one whose securities do not show up on the list of the stock exchange.
- Listed Companies are required to follow the guidelines and regulations provided by the SEBI, whereas unlisted companies need to adhere to the guidelines and regulations given by the Central Government and the Ministry of Corporate Affairs.
- While listed companies are owned by many shareholders, unlisted companies are owned by private individuals.
- When it comes to the liquidity of securities, as a ready market is available to the listed companies, the securities are highly liquid. As against, due to the unavailability of a ready market in the case of unlisted companies, the securities are illiquid.
- As listed companies are quoted on the stock exchange, they are traded on a daily basis so their stock prices are readily available, which depends on the demand and supply forces in the market. In this way, the market value can be easily determined. On the contrary, due to the unavailability of sufficient information, the estimated market value of securities of an unlisted company is determined, on the basis of different factors.
- Volatility is high in the case of listed companies, which reflects market sentiments. On the contrary, volatility is low in the case of unlisted companies, and the price is dependent on the estimated capital value.
Stock Exchange facilitates transparency in trading of the listed securities. Also, it provides equality and competitive conditions for the purpose of trading.