By BrandsShouts If you’ve only invested in shares through the stock market, unlisted shares can sound confusing. People talk about “pre-IPO”, “startup equity”, or “private deals” and it feels like something meant only for insiders. In reality, unlisted shares are simple to understand once the basics are clear.
This article explains everything from zero level — what unlisted shares are, why people buy them, how the process works in India in 2026, and the risks you must not ignore.
What is a share?
A share means ownership. When you buy a share of a company, you legally own a small part of that company. If the company grows, your share value can increase. If it performs badly, your value falls.
What are listed shares?
Listed shares are shares of companies that trade on stock exchanges. You buy and sell them easily through your trading app during market hours. Prices are visible to everyone. Liquidity is high, and rules are strict.
Examples: large companies you see daily in the market.
What are unlisted shares?
Unlisted shares are shares of companies not listed on any stock exchange.
These companies may be:
- Private companies
- Startups
- Growing businesses planning an IPO in the future
- Public companies that are still unlisted
Their shares do not trade on the stock exchange. You cannot buy them through a normal trading app.
In short:
- Listed = public market
- Unlisted = private market
Why do people buy unlisted shares?
There are four main reasons:
1. Early entry before IPO
If a company later lists at a higher valuation, early investors may gain significantly.
2. Access to fast-growing businesses
Many strong companies stay private for years. Unlisted shares allow exposure before listing.
3. Valuation gap
Unlisted shares are often priced lower than their potential listed value.
4. Portfolio diversification
They behave differently from stock market shares and reduce over-dependence on listed markets.
Who sells unlisted shares?
Unlisted shares usually come from:
- Company founders
- Early investors
- Employees holding ESOPs
- Venture funds exiting partially
You are not buying from the company directly in most cases. You are buying from an existing shareholder.
Are unlisted shares legal in India?
Yes. Buying and selling unlisted shares is legal.
However:
- Transfers must follow company rules
- Proper documentation is mandatory
- Payments and demat transfer must be traceable
Illegal activity usually happens through fake platforms or cash deals — not because unlisted shares themselves are illegal.
How unlisted shares are held (very important)
In 2026, almost all unlisted shares are held in demat form.
Earlier, physical share certificates were common. That era is nearly over.
Today:
- You need a demat account
- Shares are transferred through off-market demat transfer
- The company updates its shareholder records after transfer
If someone offers only paper certificates without demat possibility, be extremely careful.
Step-by-step: how to buy unlisted shares in India
Step 1: Find the opportunity
You can find sellers through:
- Private networks
- Unlisted share brokers
- Structured unlisted marketplaces
- Employee exits
Always check the company name, share class, and transfer eligibility.
Step 2: Check if transfer is allowed
Not all shares are freely transferable.
You must confirm:
- Company allows share transfer
- No lock-in restrictions
- No right-of-first-refusal blocking your purchase
If transfer approval is required, it must come before demat credit.
Step 3: Price negotiation
There is no screen price like the stock market.
Prices depend on:
- Last funding round valuation
- Company financials
- IPO expectations
- Demand and supply
Always compare prices from multiple sources.
Step 4: Documentation
You will usually need:
- Buyer and seller KYC
- Share transfer agreement
- Company approval (if required)
- Off-market demat transfer form
Do not skip paperwork even if the deal is small.
Step 5: Payment and transfer
Best practice:
- Use escrow or conditional payment
- Money moves only after demat credit confirmation
- Never send funds without traceable records
Once credited, the company updates its register of members.
Taxation of unlisted shares
This is often misunderstood.
- Holding period for long term: more than 24 months
- Short-term gains: taxed as per your income slab
- Long-term gains: taxed as per prevailing capital gains rules
You must keep:
- Purchase agreement
- Payment proof
- Demat credit statement
Poor documentation can create tax trouble later.
Biggest risks you must understand
1. Low liquidity
You cannot sell instantly. Sometimes it may take months or years to exit.
2. No guaranteed IPO
Many companies never list or list at lower valuations.
3. Information gap
Financial data is limited compared to listed companies.
4. Fraud platforms
Fake intermediaries are the biggest danger. If returns are promised, walk away.
5. Regulatory delays
Transfers can get stuck if documentation is incomplete.
Who should invest in unlisted shares?
Suitable for:
- Long-term investors
- People with surplus capital
- Investors who understand business risk
Not suitable for:
- Emergency money
- Short-term trading mindset
- People uncomfortable with paperwork and patience
Final thoughts
Unlisted shares are not a shortcut to easy money. They sit between private equity and stock market investing. When done carefully, they can add serious value to a portfolio. When done blindly, they can lock your money for years.
In 2026, rules are stricter, demat systems are better, and transparency is improving — but discipline is still your biggest protection.