What it means
The label comes mainly from the UK, where a public limited company (plc) is a legal form that may raise money from the public. Many plcs choose to list their shares on an exchange, but some never do, and those are the unquoted ones.
The legal form is a status the company holds, while listing is a separate step it may or may not take. Because there is no exchange, there is no continuous trading and no quoted share price.
Shares change hands through private sales, matched trading platforms or direct negotiation, which can take weeks and often needs the board's agreement. This makes the shares much harder to sell than shares in a listed company.
Disclosure rules are also lighter than for listed companies. An unquoted plc still files annual accounts and follows company law, but it does not usually face the stock exchange's continuing reporting duties such as rapid announcements of price-sensitive news.
Investors therefore often rely on shareholder agreements and direct access to management for information. Valuation is where finance teams feel the difference most.
Analysts value the business using methods such as discounted cash flow (forecasting future cash and converting it to today's value) or earnings multiples from comparable listed companies, and then apply a discount for lack of marketability. Such discounts are commonly in the range of 10% to 30%, depending on how hard the shares are to sell.
A common route for these companies is eventually to list, to be bought by a larger business, or to stay unquoted as a long-term vehicle for investors who value control and privacy. The nuance is that meanings differ between countries, and in the United States the word public usually means a company whose shares are registered and traded, so the same label can mislead.
In practice
Real-world examples.
Example
A regional brewery with 600 shareholders is set up as a public company but has never listed. When a retiring director wants to sell her shares, the company circulates an offer to existing holders and a matching buyer is found after six weeks. The price is negotiated by reference to the latest valuation prepared by the company's accountants.
Example
A venture-backed fintech converts to a public company ahead of a possible flotation. The board delays listing for two years because market conditions are poor, and in the meantime the finance team keeps producing audited accounts to the standard a listed company would need. The investors value their holdings with a marketability discount in their own reports.
Example
A pension fund is asked to buy $3,000,000 of shares in an unquoted shipping company. The fund's analyst notes that exit may take years and asks for a higher expected return than for a similar listed company. The deal is priced at a discount to the sector's listed valuation.
Formula
Calculation
Value of the stake = (equity value as if listed x ownership %) x (1 - marketability discount)
Suppose an analyst values an unquoted plc at $40,000,000 as if it were listed. An investor owns 5% of the shares, so the pro rata value is 40,000,000 x 0.05 = $2,000,000. The analyst applies a marketability discount of 25% because the shares cannot be sold quickly. Value of the stake = 2,000,000 x (1 - 0.25) = 2,000,000 x 0.75 = $1,500,000, so $500,000 of value is removed to reflect the lack of a market.Case study
Seen in the real world.
Calder Valley Foods is an illustrative, fictional plc that sells frozen meals and has 900 shareholders, many of them employees and local investors. It has chosen never to list, partly to avoid the cost of exchange compliance.
When the founder's family wanted to sell a 20% holding, the finance director prepared a valuation of the whole company at $30,000,000 on a listed-equivalent basis. The family stake therefore had a pro rata value of $6,000,000, but the buyer insisted on a marketability discount of 20%, giving a price of $4,800,000.
The illustrative lesson is that being a public company in law does not make the shares easy to sell, and a seller who expects the full pro rata price may be disappointed.
Watch out
Common mistakes.
- Assuming that a public company must be listed on an exchange, when the legal form and the listing are separate things.
- Valuing a minority stake at its full pro rata share of company value, when buyers normally ask for a discount because the shares are hard to sell.
- Believing that an unquoted public company has no reporting duties, when it still has to file accounts and follow company law.
Questions
People also ask.
Can an unquoted public company later list?
Yes, it can apply to an exchange and go through an admission process, which usually involves a prospectus (a formal offer document) and advisers.
Is an unquoted public company the same as a private company?
No, because a private company is legally restricted from offering shares to the public, whereas an unquoted public company is allowed to but has not listed.
How do investors find a price for the shares?
They rely on valuation methods, recent private transactions and negotiation, because there is no quoted market price.
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