Common Challenges You Face When You Sell Unlisted Shares

Long-term investors looking for early access into promising companies are mostly drawn to unlisted shares as an investment option. Although buying these shares is frequently discussed, selling these types of investment can be much more difficult. Selling Unlisted shares on stock exchange can be a very difficult task. You can make better plans and prevent needless losses if you are aware of these difficulties in advance.

1. Lack of Liquidity

One of the biggest challenges investors face when they sell unlisted share is low liquidity. Unlike listed shares that can be sold instantly on stock exchanges, unlisted shares do not have an active secondary market. Buyers and sellers must be matched privately, which can take weeks or even months. In some cases, investors may struggle to find buyers at all, especially if the company is not well known or lacks strong financial performance.

Because of this limited liquidity, investors often have to compromise on price or wait longer than expected to complete a transaction.

2. Price Discovery Issues

Price discovery is another major hurdle. For listed companies, prices are transparent and available in real time. However, when you sell unlisted share, there is no single reference price. Valuations can vary significantly depending on demand, company fundamentals, and negotiations between buyer and seller.

This lack of transparency often leads to confusion and disagreement over the fair value of shares. Investors may end up selling below intrinsic value simply because reliable pricing data is not easily available.

3. Finding a Genuine Buyer

Identifying a trustworthy buyer is not always easy. The unlisted share market is largely unregulated compared to stock exchanges, which increases the risk of dealing with unreliable intermediaries. Many investors face delays, incomplete payments, or even fraudulent offers while trying to sell their holdings.

When you sell unlisted share, you must ensure that the buyer is credible and that the transaction follows proper legal and compliance procedures. Working with established platforms or experienced brokers can reduce these risks but may involve additional costs.

4. Lengthy Transaction Process

Selling unlisted shares is not a quick process. Documentation requirements, share transfer approvals, and compliance checks can make the entire transaction time-consuming. Unlike listed shares that settle within a few days, unlisted share transactions may take several weeks to complete.

This long execution time can be frustrating, especially for investors who need liquidity urgently. Delays may also arise due to incomplete paperwork or slow response from company registrars.

5. Taxation Complexity

Taxation is another area that often confuses investors. Capital gains tax on unlisted shares differs from listed shares, both in terms of holding period and tax rates. Many investors are unaware of these differences until after the transaction is completed.

When you sell unlisted share, improper tax planning can significantly reduce your net returns. Consulting a tax advisor before selling can help you understand your tax liability and structure the transaction efficiently.

6. Regulatory and Compliance Constraints

Unlisted shares are subject to specific regulatory guidelines under the Companies Act and other applicable laws. Certain companies may impose restrictions on share transfers, such as right of first refusal (ROFR) clauses or board approvals.

Ignoring these conditions can lead to rejected transfers or legal complications. Investors must carefully review shareholder agreements before initiating the sale.

7. Limited Market Information

Access to accurate and up-to-date information about unlisted companies is often limited. Financial statements, growth plans, and operational performance may not be publicly available or regularly updated.

This information gap affects both buyers and sellers. Investors attempting to sell unlisted share may find it difficult to justify their expected price without solid data, making negotiations more challenging.

8. Dependence on Intermediaries

Most unlisted share transactions rely heavily on intermediaries such as brokers or private platforms. While they help connect buyers and sellers, their commissions can reduce overall returns. Additionally, the quality of service varies widely among intermediaries.

Choosing the wrong intermediary can result in delays, poor pricing, or compliance issues. Due diligence is essential before engaging any third party.

9. Market Sentiment and Timing

Market sentiment plays a crucial role in determining demand for unlisted shares. Economic slowdowns, changes in regulations, or poor sector performance can negatively impact buyer interest.

Even strong companies may face reduced demand during unfavorable market conditions. Timing your exit correctly is critical to achieving optimal returns.

While unlisted shares can offer attractive long-term opportunities, exiting such investments comes with its own set of challenges. From liquidity constraints and pricing issues to regulatory hurdles and taxation complexities, the process requires careful planning. Investors who wish to sell should be patient, well-informed, and cautious in their approach.

By understanding these common challenges and seeking professional guidance when needed, you can improve your chances of a smoother and more profitable exit from unlisted investments.