When a private company wants to raise money without going into debt, they often file for an initial public offering. This lets them sell portions (or shares) of their company on a stock exchange for money to expand and grow their business. This would make the private company a public company, and their value can go up or down during the trading day.
Stock exchanges, however, have strict rules about being a public company and selling shares on their watch. If you do fail to abide by their rules, or you just don’t want to be a public company anymore, you can actually be delisted from an exchange.
Being delisted can cause some confusion amongst existing shareholders. Sometimes, it could even mean bad things for a company’s future.
If a company violates regulations or fails to reach financial requirements by their stock exchange, they could be delisted.
When a company is forcibly delisted, they trade “over-the-counter,” which means they’re placed on a less regulated exchange. Existing shareholders will still own stock, but they might not want to own the stock if it’s not in good standing.
If a company’s value or price slides close to zero and their future looks grim, a stock exchange could give them the boot.
If the company has questionable practices that go against the guiding principles of their exchange, they’ll also be thrown off of it.
This happened recently with MGT Capital Investments ($MGT), a company run by John McAfee (of McAfee Antivirus fame).
Companies can purposely delist themselves when they want to go from public to private.
In this instance, an investor or investment firm would purchase the company, reimburse existing shareholders, and retool the company to make it better. That company could be relisted on a stock exchange at a later date.
Companies are also delisted when they’re acquired or merge with another company.
When two companies merge together, they become a new company, which is then listed on a stock exchange as an entirely different company. When a company acquires another company, the company being bought is often delisted.
When a company is forcibly delisted by an exchange, it often means that the company is in bad standing and their future outlook is pretty grim. These are companies you probably wouldn’t want to invest in, especially if they’re on an over-the-counter exchange. Stocks on these exchange are volatile, unregulated, and incredibly risky to invest in.
Share this story with your friends below, and keep them far, far away from over-the-counter stocks!