How Unlisted Shares Work: Explained Like You're 10

You know how listed shares work – open Zerodha, click buy, shares appear in your demat. Simple. But unlisted shares? The process is different, and if you don't understand it, you could make costly mistakes.

Let's walk through exactly how unlisted share trading works – step by step, like you're learning it for the first time.

The Players in an Unlisted Transaction

Before diving into the process, let's understand who's involved:

Seller: Usually an employee (ESOP holder), early investor, or existing shareholder who wants to sell their stake.

Buyer: That's you (or any investor) looking to buy pre-IPO shares.

Broker/Platform: Facilitates the transaction, finds matches between buyers and sellers.

RTA (Registrar and Transfer Agent): The company that maintains official share records. Think of them as the "land registry" but for shares.

Demat Account: Where shares are held electronically (CDSL or NSDL).

Step 1: Finding Shares to Buy

Unlike listed markets where shares are always available, unlisted shares depend on someone willing to sell. This is why working with established platforms matters – they have networks of sellers.

Where unlisted shares come from:

Employees exercising and selling ESOPs

Early investors (angels, VCs) selling partial stakes

Existing shareholders wanting liquidity

Promoters/founders occasionally selling small portions

What you'll typically see:

Company name

Current unlisted market price (indicative)

Minimum lot size (you can't buy just 1 share)

Brief company information

Step 2: Expressing Interest & Getting Quote

Once you find a company you're interested in, the process begins:

1. You express interest or place an inquiry

2. Broker checks current availability with sellers

3. You receive a quote with exact price, lot size, total amount

4. Quote is typically valid for 24-48 hours (prices can change)

Important: Prices are negotiated, not fixed. The price you see advertised is indicative. Final price depends on current supply-demand.

Step 3: KYC Verification

Before your first transaction, you'll need to complete KYC (Know Your Customer):

Documents required:

PAN Card (mandatory)

Aadhaar (for address proof)

Demat account details (Client ID, DP ID)

Bank account details (for payment)

Passport-size photo

Cancelled cheque

This is a one-time process. Once KYC is done, future transactions are faster.

Step 4: Agreement & Payment

Once you confirm the purchase:

1. You'll receive a purchase agreement to sign

2. Payment is made to an escrow account (for your protection)

3. Funds are held securely until shares are transferred

Payment methods typically accepted:

NEFT/RTGS/IMPS (bank transfer)

UPI for smaller amounts

Why escrow matters: Your money doesn't go directly to the seller. It's held by a third party until you actually receive the shares. This protects you from fraud.

Step 5: Share Transfer Process

This is where it differs most from listed shares:

The Seller's Side:

1. Seller signs a Share Transfer Deed (legal document transferring ownership)

2. Seller submits DIS (Delivery Instruction Slip) to their DP (Depository Participant)

3. Shares move from seller's demat to transit/suspense account

The Transfer Process:

1. Documents go to the RTA (Registrar)

2. RTA verifies everything is in order

3. RTA processes the transfer

4. Company's records are updated with new owner

5. Shares credited to your demat account

Timeline: Typically 3-7 working days from payment

Step 6: Verification & Confirmation

Once shares are transferred:

1. Shares appear in your demat account under "unlisted" category

2. You receive confirmation from the platform

3. You should verify the ISIN matches what you purchased

4. Payment is released to seller from escrow

Pro tip: Always verify shares have been credited to your demat before considering the transaction complete. Check your CDSL/NSDL statement.

The Complete Flow (Visual Summary)

Day 1: Express interest → Receive quote → Confirm purchase

Day 1-2: KYC verification (if first time) → Sign agreement

Day 2-3: Make payment to escrow → Payment confirmed

Day 3-7: Transfer process initiated → Documents to RTA → RTA approval

Day 5-10: Shares credited to your demat → Transaction complete

Where Do Unlisted Shares Sit in Your Demat?

Unlisted shares are held in your regular demat account – the same one you use for listed shares. They appear in a separate category.

Important things to know:

They show as "unlisted" or "non-traded" securities

You cannot sell them through regular trading apps

When company IPOs, they automatically become tradeable

Some demat account statements may show zero value (since no market price)

What Happens When the Company IPOs?

This is the exciting part:

1. Company files DRHP with SEBI

2. After approval, company lists on NSE/BSE

3. Your unlisted shares automatically convert to listed shares

4. They become tradeable on your normal trading apps

5. You can sell at market price (subject to any lock-in periods)

Lock-in consideration: Sometimes pre-IPO shareholders have lock-in periods of 6 months to 1 year post-listing. This means you can't sell immediately. Check before buying.

Costs Involved

Let's be transparent about costs:

Share price: The actual cost of shares

Brokerage/commission: Usually 1-3% of transaction value

Documentation charges: Small fee for transfer documents (₹500-1000)

Stamp duty: As per state regulations

Note: Unlike listed shares, there's no STT (Securities Transaction Tax) on unlisted shares.

Common Questions

Q: Can I buy just 1 share? Usually no. Unlisted shares have minimum lot sizes (could be 10, 50, 100+ shares depending on company).

Q: What if transfer fails? If using escrow, your money is refunded. This is why escrow protection matters.

Q: How do I sell unlisted shares? Same process in reverse – find a buyer through platform, complete transfer.

Q: Can I gift unlisted shares? Yes, through off-market transfer, but gift tax implications may apply.

Key Takeaways

Unlisted shares trade through brokers, not exchanges

KYC and proper documentation are mandatory

Always use escrow-protected transactions

Transfer takes 3-7 working days (not instant like listed)

Shares sit in your regular demat account

When company IPOs, shares become tradeable automatically

Typical costs include brokerage (1-3%) plus small documentation fees