What Is Unlisted Equity Shares? Meaning, Risks & Taxation Explained (2026)
Reviewed by Kanishk Dev Bangia, NISM Series XV Certified Research Analyst
Last Updated: June 2026 | Reg. No: NISM-202300182946
If you have listened to people discussing buying shares in an āupcoming company before it becomes listed,ā then there is no doubt that the shares in discussion are none other than the unlisted equity shares. In light of the growing awareness among Indian shareholders for investing in other forms of shares, one question always lingers: what is unlisted equity shares, and what sets them apart from listed shares?
Here is a guide that defines the term unlisted equity shares in easy-to-understand language, elaborates upon their mode of holding, trading, origin, risk factors, and taxes. It is entirely for educational purposes only and does not encourage anyone towards purchasing or selling any particular share.
Meaning of Unlisted Equity Shares
To answer the question straight away: Are unlisted shares equity? The answer is yes. An unlisted equity share represents an ownership interest in the equity capital of a company, just like a listed share, but the company itself is not listed in any stock exchange recognized by SEBI such as the NSE and BSE.
If you have an equity share in a business, you have a piece of the action. As an owner, you are entitled to receive dividends if they are declared, and you hold voting rights. None of this changes if the business is not listed. The term āunlistedā applies merely to the place of trading (or non-trading) for the shares but not to what the security is essentially.
And the unlisted equity shares definition? It is quite simple. An unlisted equity share is equity of a business whose shares are not traded on the stock market. Such businesses are often privately held, developing, or preparing for an IPO.
Unlisted Shares vs Listed Shares: The Key Differences
The clearest way to understand unlisted equity is to compare it against the listed shares most people know. The table below summarises the main differences in the unlisted shares vs listed debate.
The single biggest practical difference is liquidity and price discovery. On an exchange, there is always a visible market price and, usually, a willing buyer or seller. With unlisted shares, the price is whatever a buyer and seller agree on, and you cannot assume you will find someone to transact with on demand.
How Are Unlisted Equity Shares Held and Traded?
The first myth regarding unlisted securities is that they represent physical certificates stored in a safe drawer somewhere.
Unlisted shares are maintained in demat form. All actively traded unlisted equities in India are kept in demat form. They reside within your demat account, just like your other stocks. Once you purchase the unlisted security, it is automatically transferred into your demat account and visible as part of your other investments.
The second myth surrounding unlisted securities is that they are not traded. As there is no trading order on the NSE or BSE order books, unlisted stocks are privately traded. This means that the shares are sold on a one-to-one basis, and a buyer purchases unlisted securities directly from a seller at an agreed-upon price and quantity. It is an off-exchange transaction that involves transferring the securities from one demat account to another, with money being paid separately. The entire process is conducted through intermediaries.
Finally, the bilateral nature of each transaction means that there is no continuity in trading unlisted securities. What it means is that once you purchase some particular unlisted security today, tomorrow it may become difficult to sell them.
Where Do Unlisted Equity Shares Come From?
Unlisted shares hit the market via a few usual routes:
ā¢ Pre-IPO shares. Shares of companies which are presumed to be listed sometime in the future. Investors purchase them in the unlisted market, aiming to become owners of such companies before a listing, although a listing is not a certainty (as discussed below).
ā¢ ESOPs (Employee Stock Option Plans). Private firms usually provide their employees with shares in the course of compensation packages. Upon exercise of those options, an employee may decide to sell their shares, putting them on the unlisted market.
ā¢ Private placement. Companies issue securities directly to investors instead of going to the general public. In other words, all allotments made as a result of such issuance are unlisted shares by default.
ā¢ Holdings of promoters/early investors. Founders of the company as well as early-stage investors occasionally dispose of some of their stake, making unlisted shares available on the unlisted market.
For a more detailed explanation, see our explainer on Unlisted Shares.
Key Risks of Unlisted Equity Shares
This is where it really counts, and here lies the need for honesty, rather than hyperbole. Unlisted shares present distinct risks not necessarily found in listed shares.
ā¢ Illiquidity. This is the key risk. It is not guaranteed there will be a buyer waiting should you wish to sell. You might find yourself holding the investment much longer than expected, just because there are no takers for your share at your asking price.
ā¢ Pricing uncertainty. With no live prices available, valuing an unlisted share proves to be tricky. Unlike listed shares, private companies publish little financial data, meaning that you must understand how to evaluate your investment.
ā¢ Uncertain listing status. Being pre-IPO does not equal going public soon. Companies could postpone their listing plans for many years or give up altogether. Making a buying decision based on upcoming listing prospects is taking a gamble, not making a sure bet.
ā¢ Larger price spreads. Due to negotiations, price discrepancies can arise in such transactions between sellersā and buyersā offers. Also, prices of unlisted shares may differ among several intermediaries.
ā¢ Information advantage. You might be less informed about the company than insiders are.
How Are Unlisted Equity Shares Taxed in India?
One of the more practical differences between the two forms of equity is that of taxation, and this one makes the difference in practice and in law.
Whereas shares of unlisted equity in India will need to be held for 24 months to receive the benefits of long-term capital gains (LTCG), the long-term threshold is significantly lower for listed shares. Generally speaking:
ā¢ Holding unlisted shares for longer than 24 months will ensure that gains realized from their sale qualify as LTCG.
ā¢ Holding unlisted shares for 24 months or less will mean that gains from selling them will be treated as STCG.
Of course, tax rates applicable to both long and short term capital gains, surcharges, cess, and eligibility for indexation are all prescribed in law ā specifically, the Income Tax Act and the yearly Finance Act. In addition, other factors may affect such matters, including restrictions on purchase/sale prices of unlisted shares compared to their fair value. It is important to seek confirmation with the official sources at the Income Tax Department and tax professionals regarding such issues.
How to Buy Unlisted Equity Shares
In terms of its broad outline, purchasing unlisted shares entails three major components: having a demat account to hold the share, identifying the counterparty (the seller) to purchase from, and finally having a mode of transferring money and executing the transaction. Since there will not be any third party like an exchange acting between the buyer and seller, it is important to do oneās due diligence when it comes to the share itself, its pricing, and the intermediary.
We have compiled a comprehensive guide that takes you through the process in detail step by step. Read how to buy shares of unlisted companies.
Frequently Asked Questions
1. Unlisted shares are equity or debt?
Unlisted shares are equity instruments. They denote ownership in an enterprise, similar to listed stocks. The only difference is that unlisted shares are not traded on any recognized exchange such as NSE or BSE.
2. Differences between listed and unlisted shares?
Listed equity shares trade in a public stock exchange, which offers live price quotations with high liquidity. On the other hand, unlisted shares are traded in private deals with negotiated prices and limited liquidity. The underlying asset is similar in both cases, i.e., ownership in an entity.
3. Is it possible to demat unlisted equity shares?
Yes. In India, almost all unlisted equity shares that are actively traded are dematerialized and deposited in standard demat accounts that hold regular listed shares. They are transferred in off-market transfer mode.
4. How long should I hold unlisted shares to earn long-term capital gains?
The minimum period required to be eligible for long-term capital gains tax benefit is 24 months for unlisted equity shares in India. Anything below that period will attract short-term capital gains tax.
Disclaimer:
This is written for educational and informational purposes only. Nothing here constitutes investment advice or a recommendation to buy or sell securities. All data is sourced from publicly available information. Investments in securities markets are subject to market risks ā please read all offer documents carefully before investing.
