Points to Check Before You Sell Unlisted Shares

Unlisted shares can be a valuable part of your investment portfolio, often it offers high growth potential before a company goes public. However, selling them is not as simple and straightforward as selling them on listed stocks. The process involves regulatory checks, valuation challenges, and liquidity concerns. Before you move ahead, its significant to understand the key factors that can impact returns. Below are given the most important points to check before you sell unlisted shares.

1. Understand the Nature of Unlisted Shares

Unlisted shares are equity shares of companies that are not traded on recognized stock exchanges like NSE or BSE. Because they lack daily market pricing and liquidity, their value depends largely on demand, company performance, and future prospects such as IPO plans. Before selling, ensure you clearly understand the type of shares you hold—whether they are ESOPs, promoter holdings, or private placements—as this can affect transferability and pricing when you decide to sell unlisted shares.

2. Check Transfer Restrictions

Many unlisted companies impose restrictions on the transfer of shares. These may include lock-in periods, right of first refusal (ROFR), or the need for board approval. Ignoring these conditions can delay or even cancel the transaction. Carefully review the company’s Articles of Association (AoA) and shareholder agreements to confirm whether you are legally allowed to sell your holdings at the current time.

3. Evaluate the Fair Valuation

Pricing is one of the biggest challenges in unlisted markets. Since there is no transparent exchange price, valuations are usually derived from recent transactions, financial performance, peer comparison, or independent valuation reports. Before you sell unlisted shares, compare prices offered by multiple buyers or platforms to avoid underselling. A realistic valuation ensures you receive fair value while keeping the deal attractive to buyers.

4. Assess Liquidity and Buyer Availability

Unlike listed stocks, unlisted shares cannot be sold instantly. Finding the right buyer may take time, especially for lesser-known companies. Liquidity depends on factors such as company reputation, financial health, and IPO expectations. If demand is low, you may have to accept a discounted price. Understanding conditions of liquidity will help you decide whether it’s the right time to sell unlisted shares or wait for better market interest.

5. Verify Documentation and Compliance

Proper documentation is essential for a smooth transaction. This includes share certificates, demat statements (if shares are in demat form), KYC documents, and transfer deeds. Any mismatch or missing paperwork can slow down the process. Additionally, ensure compliance with SEBI regulations, the Companies Act, and RBI guidelines (in case of foreign investors). Being compliant reduces legal risks when you sell unlisted shares.

6. Understand Tax Implications

Taxation plays a significant role in determining your net returns. Gains from unlisted shares are subject to capital gains tax. If the holding period exceeds 24 months, long-term capital gains (LTCG) apply, usually taxed at 20% with indexation benefits. Short-term gains are taxed as per your income tax slab. Consulting a tax advisor before finalizing the sale can help you optimize tax liability and avoid surprises after you sell unlisted shares.

7. Choose the Right Selling Platform

You can sell unlisted shares through brokers, online platforms, or direct buyer networks. Each option has different commission structures, transparency levels, and settlement timelines. Reputed platforms often provide escrow services, valuation support, and compliance checks, reducing risk for both parties. Choosing the right channel improves trust and ensures timely payment.

8. Consider Future Growth Potential

Before selling, evaluate whether the company has strong future prospects such as an upcoming IPO, strategic acquisitions, or rapid revenue growth. Selling too early might mean missing out on significant upside. On the other hand, if growth prospects look weak, exiting early to sell unlisted shares could be a smart decision. A balanced view of future potential is essential.

Selling unlisted shares requires more planning and due diligence than selling listed stocks. By checking transfer restrictions, valuation, liquidity, documentation, tax impact, and future growth prospects, you can make an informed decision and maximize returns. A well-timed and well-executed sale not only protects your investment but also ensures a smooth and legally compliant transaction.