What Is an Unquoted Public Company?

What Is an Unquoted Public Company?

Let me explain what an unquoted public company is. It's a firm that has issued equity shares, but those shares aren't traded on a stock exchange anymore. You might also hear it called an unlisted public company.

Key Takeaways

To sum it up quickly, an unquoted or unlisted public company has shares that don't trade on exchanges. This could be because the company is too small, has too few shareholders, or got delisted. Instead, you buy and sell these shares in over-the-counter markets.

Understanding Unquoted Public Companies

A public company issues stock through an IPO, and normally, those stocks trade on exchanges like the New York Stock Exchange or over-the-counter. But with unquoted ones, they're unlisted and only trade OTC. Remember, OTC markets have less transparency than public exchanges.

Reasons for Being Unquoted

Companies end up unquoted for several reasons. They might be too small to meet exchange listing requirements, like earnings thresholds or minimum shares outstanding. Or they could have too few shareholders, or management wants to skip disclosure rules. Cost is a big factor—listing can cost millions, which a struggling company might avoid.

Sometimes, companies get delisted voluntarily or for failing requirements. By staying unquoted, owners run it more like a private company, dodging some regulations. But they're still public, so they follow financial reporting and might face takeover rules. They could even be restricted from marketing to investors.

Trading and Valuation

Shares in these companies trade OTC, where broker-dealers quote prices, but trades can happen privately without everyone knowing the details. This means less transparency overall. These stocks are often illiquid, making pricing tough.

For valuation, you use models like the comparables approach. That means looking at similar companies or deals in the same industry to estimate value. You analyze competitors and market transactions to figure out the equity share worth.

Unquoted vs. Listed Companies

Here's the difference: Listed companies trade on exchanges like NYSE or NASDAQ, following strict rules on reporting and governance. Unquoted ones don't have that scrutiny, so information is harder to get, making it tough for you to assess value.

Their goals differ too. Listed firms focus on stock price and dividends for shareholders. Unquoted ones might aim for long-term growth or staying controlled by a small group, perhaps gearing up for acquisition.

Risks of Investing

Investing here has risks. Liquidity is low—you can't easily sell shares like on an exchange. Transparency is lacking, so evaluating the company's health is harder, leaving you open to surprises.

Valuation is uncertain without market prices; it's based on private deals, which can vary. You might not get the price you expect when selling.

Example of an Unquoted Public Company

Imagine Google decides to delist and go unquoted. It'd be owned mostly by founders and private investors. Trading would be OTC, not on exchanges, so buying or selling isn't quick. Valuation would come from comparing to competitors in tech, and they'd have fewer regulations to deal with.

Benefits and How They Operate

Being unquoted gives more flexibility with public ownership but fewer rules, cutting costs. Investors buy shares via private deals or OTC, often through brokers. To raise capital, they do private placements to big investors or VCs.

The Bottom Line

Unquoted public companies are public but trade privately or OTC, with more flexibility and less regulation than listed ones. However, you face challenges like low liquidity and transparency as an investor.