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# SEBI Rules for Unlisted Shares — What Retail Investors Need to Know
India's securities market regulator, SEBI (Securities and Exchange Board of India), has an important but limited role in the unlisted share market. Understanding what SEBI does and doesn't regulate helps investors protect themselves and navigate the pre-IPO market more safely.
Disclaimer: Regulations change. This article reflects general principles as of mid-2026. Always verify current rules at sebi.gov.in or consult a legal adviser for specific transactions.
The Regulatory Framework: Two Different Laws
SEBI Act + Securities Laws: Govern listed securities, public offers, and registered intermediaries. SEBI's jurisdiction is strongest here.
Companies Act 2013: Governs unlisted companies — their share issuance, transfer rules, buybacks, and private placements. The Ministry of Corporate Affairs (MCA) enforces the Companies Act.
When you buy unlisted shares in the secondary market, you're primarily in Companies Act territory — not SEBI territory. But SEBI touches this space in several important ways.
Where SEBI's Rules Apply to Unlisted Shares
### 1. Prohibition on Unauthorised Public Offers
SEBI and the Companies Act together prohibit any company from making a "public offer" of its shares without full regulatory compliance (prospectus, SEBI registration, merchant banker, etc.).
What counts as a public offer? An offer to more than 200 persons in a financial year. Private placements to up to 200 investors are permitted under Section 42 of the Companies Act.
What this means for investors: A company or dealer actively soliciting thousands of retail investors to buy unlisted shares (mass email, social media campaigns promising returns) is likely violating this rule. Legitimate secondary market transactions are initiated by buyers seeking specific shares — not companies broadcasting offers.
### 2. Insider Trading Rules
SEBI's Prohibition of Insider Trading (PIT) Regulations apply to securities of listed companies. For unlisted companies, insider trading is addressed under Section 195 of the Companies Act — which prohibits dealing in securities based on price-sensitive unpublished information.
Practical implication: If you receive a tip from an employee that a company is about to announce a major contract or IPO filing, acting on that tip may constitute unlawful insider dealing even for an unlisted share.
### 3. Buyback Rules
When an unlisted company buys back its own shares, SEBI's buyback regulations don't fully apply — but the Companies Act's buyback provisions do (Sections 68–70), including restrictions on:
- Maximum buyback limit (25% of paid-up capital and free reserves in a year)
- Mandatory shareholder approval by special resolution (for large buybacks)
- Restrictions on buybacks within one year of a previous buyback
### 4. Depository Regulations
SEBI regulates CDSL and NSDL — the two Indian depositories. All demat accounts and DIS transfers operate under SEBI's depository framework. Even for unlisted share transfers, the demat system is SEBI-regulated infrastructure.
### 5. AIF Regulations
Venture capital funds and private equity funds that invest in unlisted companies must register with SEBI as Alternative Investment Funds (AIF). Category I AIFs (angel funds, venture capital funds) and Category II AIFs (PE funds) are full SEBI registrants with disclosure, investor reporting, and compliance obligations.
Post-IPO Lock-In Rules
When an unlisted company goes public, SEBI's ICDR (Issue of Capital and Disclosure Requirements) regulations impose lock-in periods on certain shareholders:
| Category | Lock-in Period | |---|---| | Promoters (minimum 20% of post-issue capital) | 3 years | | Promoters (remaining) | 1 year | | Pre-IPO investors (institutional — seed/VC/PE) | 6 months | | Pre-IPO retail (secondary market buyers) | Generally none | | IPO allottees (anchor investors) | 30 days (50%), 90 days (remaining 50%) |
Key point for secondary market buyers: If you bought shares on Polemarch before the IPO, you are generally *not* subject to a lock-in after listing. You can sell on the exchange from day one of listing. Confirm this against your shareholder agreement and the company's DRHP disclosure.
SEBI SCORES: Your Grievance Mechanism
SEBI's SCORES (SEBI Complaint Redress System) at scores.gov.in allows investors to file complaints against:
- SEBI-registered intermediaries (brokers, platforms)
- Listed companies
- Depositories
For disputes with unlisted share platforms:
- If the platform is SEBI-registered, file on SCORES
- If the platform is not registered, complaints go to consumer courts or cyber crime cells
Always verify that any platform you use has a SEBI registration or is otherwise regulated before transacting.
Upcoming Regulatory Developments
SEBI has been actively reviewing its framework for the pre-IPO and unlisted market:
- Consultation papers on disclosure norms for unlisted companies above a certain size
- Potential requirements for unlisted intermediaries to register with SEBI
- Tighter rules around IPO lock-in circumvention via derivative structures
Stay updated at sebi.gov.in/announcements for circulars affecting the unlisted market.
*Published by the Polemarch editorial team. Not legal advice — consult a lawyer for regulatory questions.*