Web Trader MT5 
Unlisted shares are non-listed company stock. In India, buy them through SEBI-registered intermediaries or directly from the market through your depository participant.
These acquisitions are legal when they are in accordance with the Companies Act and the company’s bylaws, which require demat accounts, extensive documentation, and an understanding of illiquidity and transfer limitations.
Have you ever wondered why early investors receive a stake in giant companies even before they are listed on the stock market?
It is a common assumption that only venture capitalists or people with extremely high net worth can invest in high-growth companies. The landscape has, however, changed, and informed retail investors can now join the growth story of private companies before they go public.
The prospect of earning money is attractive, but unlike when purchasing stocks on a standard trading app, the process is very different. It involves a different process, additional research, and a clear comprehension of the regulatory framework.
This guide will teach you how to purchase unlisted shares. This is only done through due diligence on the valuation of the business, liquidity risks, and lock-in before investing capital in the industry.
What Are Unlisted Shares – and Is It Legal to Buy Them?
Unlisted shares are ownership in privately owned limited or publicly owned limited companies that are not listed on an established stock exchange.
Unlisted shares do not have a real-time price discovery or guaranteed liquidity as listed shares do, because you can purchase the latter with a click on a trading application.
The supply is typically provided by employees who sell their Employee Stock Ownership Plans (ESOPs), early-stage angel investors seeking an exit, or pre-IPO funding rounds wherein the company encourages strategic investors.
Is it legal? Yes. In India, it is legal to purchase and sell unlisted shares, provided the transaction is conducted in accordance with the Companies Act and SEBI rules governing off-market transfers.
The company registrar should document the transfer, and stamp duties should be paid.
Who can buy?
- Resident Individuals: Every resident Indian with a PAN card and a Demat account is eligible to invest.
- Non-Resident Indians (NRIs): NRIs are permitted to invest, but they must strictly adhere to the provisions of the Foreign Exchange Management Act (FEMA). Before proceeding, it is better to consult your NRO/NRE bank relationship manager.
Retail participation in unlisted shares has surged – for instance, NSE (before listing) alone saw its unlisted shareholder base grow to over 1.59 lakh, up nearly fourfold in a single quarter.
To know how to buy unlisted shares in India, you have to step outside the realm of more common screen-based trading and enter the realm of off-market deals that are negotiated. Unlisted equity requires more time and patience than trading highly liquid assets.
Routes to Purchase Unlisted Shares
There are two main options that you usually have: an arrangement with a special intermediary or a direct transfer with a seller.
How to Buy Unlisted Shares Online
Retail investors typically enter the market through special unlisted share dealers or intermediaries. These are not ordinary brokers, but rather firms that purchase bulk shares (blocks) from employees or early investors.
- The Process: You have to sign up with them and undergo KYC, choose the company and fund the transaction.
- The Advantage: It facilitates the seller’s hard work in establishing ownership and helps transfer it to your Demat account.
How to Buy Unlisted Shares Before IPO
The particular strategy covers companies that have declared their intention to go public. These shares are sold to investors in the secondary market by current shareholders (such as former employees).
- The Goal: When the IPO is launched, investors hope to gain a listing gain.
- The Catch: The price during the pre-IPO stage is high due to high demand.
Direct Off-Market Transfer
When you personally know a seller (for example, a friend who is exiting a startup), you can make a direct transfer.
- Agreement: The buyer and the seller settle on a price.
- Execution: Seller sends a Delivery Instruction Slip (DIS) to their Depository Participant (DP).
- Approval: The transfer is confirmed by the company registrar.
Route Comparison
| Feature | Intermediary/Online Desk | Direct Off-Market |
| Sourcing | Curated lots (ESOPs/early investors) | Self-arranged |
| Diligence | Docs & checks handled by the firm | Buyer must verify everything |
| Costs | Service fees included in price | DP fees + Stamp duty + Legal costs |
| Time to Credit | Usually coordinated window (24-72 hrs) | Varies; depends on approvals |
| Risk | Lower operational risk | Higher counterparty/admin risk |
Step-by-Step Process – A Practical Checklist
The process of purchasing unlisted shares is manual and consists of six distinct steps, including verification of the shares and confirmation of credit.
- Check the Security: Before transferring money, check the ISIN (International Securities Identification Number). Each dematerialized security is assigned a 12-digit code. Ensure that the ISIN corresponds to the company you plan to purchase. Check the Articles of Association of the company for any transfer limitations.
- KYC and Documentation: You will be required to submit your PAN, Aadhar (to confirm the address), cancelled cheque and your Client Master Report (CMR). The CMR is an essential document issued by your broker, which is used to validate the Demat account information.
- Contract and Price Discovery: Once you have settled on a price, you will be provided with a Deal Sheet or a Letter of Agreement (LOA). This document will specify the number of shares, the cost per share and the total consideration. Note: Price discovery is not transparent. You may encounter different prices for the same product from various mediators.
- Execution of Payments and Transfers: Transfer money through valid bank systems (NEFT/RTGS/IMPS). Never pay cash. After confirmation of payment, the seller carries out the off-market transfer through a DIS slip or through an online portal of their DP. Relevant stamp duty has to be paid (usually by the seller or split between the parties, depending on the transaction).
- Confirm Credit: Check your Demat account statement. The shares will be listed under your holdings, although they will not display a real-time price, unlike listed stocks.
- After Purchase: Store all transaction evidence (bank statements, contract notes, and deal sheets) in a secure location. These are required to calculate the Capital Gains Tax when you finally sell.
Costs and Operational Frictions to Expect
In addition to the price of the shares, you have to consider stamp duty, DP charges, and lock-in periods.
- Stamp Duty: Any transfer of unlisted shares is subject to stamp duty (generally 0.015% of the value of consideration) to be paid to register the transfer.
- Intermediary Spreads: Dealers earn a profit on the spread, or the difference between their purchase price and their sale price. This is usually incorporated in the price you pay.
- Liquidity Risk: You are not permitted to exit immediately. Selling involves identifying another willing buyer, which can take days or weeks.
Some investors explore platforms like STARTRADER to find liquid instruments that help them balance their long-term, unlisted positions with assets they can enter or exit with greater ease.
What About the “Grey Market”?
The grey market is an unofficial, trust-based, and unregulated market, which poses significant financial risks.
How to Buy Unlisted Shares in the Grey Market
You cannot, in a legal, recorded sense, purchase shares in the grey market. The grey market frequently trades in subject to IPO applications or cash-adjusted premiums (Kostak/GMP).
- The Risk: These deals are usually oral or made on an informal slip. When your counterparty backs out on the deal, you lack or have limited recourse under the law.
- The Advice: Be satisfied with Demat-to-Demat transfers. Do not engage in cash transactions or promises of delivery of shares once listed as forward contracts, which are non-compliant.
Company Transfer Restrictions and Approvals
To discourage entry by competitors, private firms typically maintain tight restrictions on ownership of their shares.
How to Buy Unlisted Shares of a Private Company
You should also make sure that the transfer is approved by the Board of Directors of the company before you purchase shares of a Private Limited company.
- ROFR (Right of First Refusal): Current stockholders usually have the privilege to purchase the stock before a non-member.
- Lock-ins: ESOPs that employees sell can have a vesting period or a lock-in provision.
- Board Approval: A rejection of a transfer by the company board is possible when the company board disapproves of the new shareholder. It is always necessary to request that the seller provide a No Objection Certificate (NOC) or a written commitment stating that the transfer is authorized.
Taxes and Lock-Ins
Unlisted share taxation is generally higher, and the lock-in periods are more extended than those of a listed equity.
- Capital Gains: Unlisted shares should typically be held for 24 months to be referred to as Long-term Capital Assets (as compared to 12 months for listed shares).
- Short Term: Taxed at your slab rate.
- Long Term: A specific rate is paid under indexation allowances (refer to the current taxation laws to find out the actual FY rates).
- IPO Lock-in: When the company becomes public, a mandatory lock-in period (e.g., 6 months) may be required after the listing (which is compulsory), so that the pre-IPO investors do not have the opportunity to sell their shares.
- Dividends: The dividends received are taxable in the hands of the investor according to their income slab.
How to Sell Unlisted Shares Later
To exit an unlisted investment, the investor has to identify a secondary market buyer or wait until the event of listing.
- Secondary Sale: You will be able to get in touch with the same person you bought from; they will be of use in making exits by linking you with new buyers.
- IPO Listing: In case the company is listed, your unlisted ISIN will ultimately become a listed ISIN (when the lock-in period expires), so that you can sell on the stock exchange.
FAQs
Yes, it is legal, provided that the transfer is a valid off-market transaction between two Demat accounts, as per FEMA (for NRIs) and Companies Act rules.
A Client Master Report (CMR) provided by your broker, along with your PAN card, Aadhaar card (as address proof), and a cancelled cheque, are the main requirements for verification with the bank.
After the payment has been confirmed and the DIS submitted, the transfer will generally be posted to the buyer’s Demat account within 24 to 48 working days, pending registration by the registrar.
Yes, although they need to be in line with FEMA. The exchange should be made through NRO accounts on a non-repatriable basis or in accordance with specific FDI provisions. Always consult a bank.
Conclusion
You can gain entry to the ground floor of the Indian growth story by learning to purchase unlisted shares. This process will enable you to invest in businesses even before they become household names on the stock market.
However, this opportunity is also accompanied by due diligence. Always check the counterparty, ensure the paperwork (CMR and DIS) is impeccable, and they should be prepared to hold for longer than the average stock trading period.
You may consider other asset classes offered on Startrader in case you need liquidity more urgently, or you want a more diversified portfolio, and you are waiting for your unlisted investments to reach maturity.
Tags
Open Live Account
Please enter a valid country
No results found
No results found
Please enter a valid email
Please enter a valid verification code
1. 8-16 characters + numbers (0-9) 2. blend of letters (A-Z, a-z) 3. special characters (e.g, !a#S%^&)
Please enter the correct format
Please tick the checkbox to proceed
Please tick the checkbox to proceed
Important Notice
STARTRADER does not accept any applications from Australian residents.
To comply with regulatory requirements, clicking the button will redirect you to the STARTRADER website operated by STARTRADER PRIME GLOBAL PTY LTD (ABN 65 156 005 668), an authorized Australian Financial Services Licence holder (AFSL no. 421210) regulated by the Australian Securities and Investments Commission.
CONTINUEImportant Notice for Residents of the United Arab Emirates
In alignment with local regulatory requirements, individuals residing in the United Arab Emirates are requested to proceed via our dedicated regional platform at startrader.ae, which is operated by STARTRADER Global Financial Consultation & Financial Analysis L.L.C.. This entity is licensed by the UAE Capital Market Authority (CMA) under License No. 20200000241, and is authorised to introduce financial services and promote financial products in the UAE.
Please click the "Continue" button below to be redirected.
CONTINUEError! Please try again.
