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I would like to know what happens to the shares I hold in a company that got delisted from the Nasdaq. -- G.

When your stock gets delisted, or booted from the stock exchange that it's traded on, there's no question that things could be better. Regardless of the reason for the company's delisting, the fact that it got kicked off their exchange is something that you should be very concerned with as a shareholder .

Is Delisting Ever Good?

Believe it or not, in and of itself, getting delisted from a stock exchange isn't a bad thing -- that is, when the company delists by choice.

There are a couple of reasons why a company would choose to delist itself from the exchange it trades on. While going public is considered by many to be the pinnacle of success for a company (see IPO ), in many cases going private is actually a good thing (see private equity ).

How? Going private consolidates ownership in a company and can actually put the company in a better financial situation than it once was in. Since going private generally suggests that another party has bought out a company's outstanding shares , most people never encounter this type of delisting situation.

Corporate restructuring can be another positive reason for delisting: Companies often change names as the result of a merger or acquisition , and sometimes companies choose to move to another major exchange. In either of these cases, delisting wouldn't be a reason for alarm.

The Ugly Side of Delisting

More often than not, when a company gets delisted, it's a result of bad things, not good ones. Companies can be (and frequently are) delisted for failing to maintain the requirements set forth by their exchange. Some of these requirements are based on a company's ability to meet filing deadlines, while others relate to the company's performance in the stock market.

All major stock exchanges have some sort of filing requirement for listed companies. This requirement helps ensure transparency in the company's financials and accounting, and this aids investors in the decision-making process. When companies don't meet their reporting deadlines, not only do they have to worry about repercussions from the exchange they're listed on, they also have to worry about sanctions from the Securities and Exchange Commission .

Stock performance is another factor in determining whether or not a company will retain the privilege of being listed on an exchange. Major stock exchanges want to exude a certain air of stability and establishment to the investors who use their services. Because of this, companies whose stocks don't meet minimum performance requirements (such as a minimum bid price of at least $1 for the Nasdaq and New York Stock Exchange ) for a given amount of time will receive a deficiency letter telling them to shape up or lose their spot on the exchange.

Both the NYSE and Nasdaq offer their listing requirements online:

Once a stock has been delisted from its exchange, it enters the hard-knock world of the penny stock . Penny stocks trade on "over-the-counter" (OTC) exchanges such as the OTCBB and the Pink Sheets . Penny stocks are basically low-priced, high-risk investments. They aren't something that new investors should mess with ( "Ask TheStreet: In the Pink" ).

What Delisting Means for Shareholders

Ownership of stock in a company doesn't change just because the company has been delisted. You still own those shares (sorry, even if you don't want to) and have the same equitable claims to a portion of the company's assets in the event that it were to dissolve.

You will also retain the right to vote your shares at the annual shareholders' meeting. (May I suggest taking a good look at that proxy statement next year.)

Still, as a shareholder, having your company delisted can have severe effects on your portfolio . Obviously, most companies that are delisted were in dire straits to begin with, but the act of delisting can actually force their stock prices to decrease further.

While the intrinsic value of the stock hasn't changed since the day before the stock was delisted, the very fact that it was ejected from its exchange is enough to make the market factors push its price even further below water. That stock that you once paid your hard-earned cash for is likely pretty close to worthless now.

When you own a delisted stock, cutting your losses might seem like a good move. But unless your holdings represent a large amount of money to you, it might not be worth the brokerage fees and time to sell.

Besides, if you still believe that your company's performance will head back up, remember that companies can become listed again after they meet the exchange's listing requirements once again. Needless to say, a company making its way back up from trading over the counter will have a lot of investor confidence to regain. Because of this, it's not uncommon for companies to rebrand themselves (with a new name or management team, perhaps) before relisting.

Investor Beware

Delisting is rarely a nice situation for most public companies, and it's especially unpleasant if you happen to be a shareholder. Be wary of companies that appear to be close to falling below the minimum continuing listing requirements of the exchange they trade on -- unless you're in a position to benefit from their collapse.

Companies get delisted each year, but this occurrence is infrequent enough that there's a good chance you won't come across it in your own holdings.
Jonas Elmerraji is the founder and publisher of Growfolio.com, an online business magazine for young investors.