how delisting works
companies must meet specific guidelines called listing standards before they can be listed on an exchange each exchange such as the new york stock exchange nyse establishes its own set of rules and regulations for listings companies that fail to meet the minimum standards set by an exchange will be involuntarily delisted the most common standard is price for example a company with a share price under 1 per share for a period of months may find itself at risk of being delisted from the nasdaq alternatively a company can voluntarily request to be delisted some companies choose to become privately traded when they identify through a cost benefit analysis that the costs of being publicly listed exceed the benefits requests to delist often occur when companies are purchased by private equity firms and will be reorganized by new shareholders these companies can apply for delisting to become privately traded also when listed companies merge and trade as a new entity the formerly separate companies voluntarily request delisting companies usually delist because they want to go private are taken over by private equity firms or fail to meet the minimum standards set by their exchange the reasons for delisting include violating regulations and failing to meet minimum financial standards financial standards include the ability to maintain a minimum share price financial ratios and sales levels when a company does not meet listing requirements the listing exchange issues a warning of noncompliance if noncompliance continues the exchange delists the company s stock more reasons for being delisted are discussed below to avoid being delisted some companies will undergo a reverse split of their stock shares this has the effect of combining several shares into one and multiplying the share price for example if a company executes a 1 for 10 reverse split it could raise its share price from 50 cents per share to five dollars per share in which case it would no longer be at risk of delisting one way for companies to get around minimum share price rules is by engaging in a reverse split the consequences of delisting can be significant since stock shares not traded on one of the major stock exchanges are more difficult for investors to research and harder to purchase this means that the company is unable to issue new shares to the market to establish new financial initiatives often involuntary delistings are indicative of a company s poor financial health or poor corporate governance warnings issued by an exchange should be taken seriously for example on april 23 2023 bed bath beyond inc filed for voluntary chapter 11 protection as a result nasdaq informed the company that bed bath beyond s common stock would be suspended at the opening of business on may 3 2023 as communicated the stock has been delisted in the united states delisted securities may be traded otc except when they are delisted to become a private company or because of liquidation 