The NASDAQ Capital Market is tailored for smaller public companies that meet specific financial, liquidity, and corporate governance standards. While being listed on NASDAQ offers prestige and access to capital, failing to maintain compliance with listing standards can lead to delisting—a process with significant consequences for companies and their shareholders.
This article outlines the delisting procedures for the NASDAQ Capital Market, including the common causes of delisting, the notification process, appeal rights, and potential outcomes.
Common Causes of Delisting
NASDAQ may initiate delisting proceedings when a company fails to meet one or more of its continued listing requirements, such as:
- Stock price falls below $1 for 30 consecutive business days.
- Stockholders’ equity drops below $2.5 million, or the company fails to meet alternative financial standards.
- Public float drops below 500,000 shares or fewer than 300 round-lot shareholders.
- Noncompliance with corporate governance rules, such as having an insufficient number of independent directors or lacking an audit committee.
Step-by-Step Delisting Process
1. Deficiency Notice
NASDAQ issues a Deficiency Notice (typically via letter or electronic notification) informing the company of the specific rule it has failed to meet. This notice typically provides:
- The nature of the deficiency.
- The time period for regaining compliance (commonly 180 calendar days for bid price issues).
- Guidance on potential remedies or compliance options.
2. Company Response and Compliance Plan
In certain cases, such as governance or financial deficiencies, the company may be required to submit a compliance plan within 45 calendar days explaining how it intends to regain compliance. NASDAQ reviews the plan and may grant an extension of up to 180 calendar days, depending on the severity of the issue and the feasibility of the plan.
3. Hearings and Appeal Rights
If a company fails to regain compliance within the initial grace period, NASDAQ typically issues a Staff Delisting Determination. The company can request a hearing before the NASDAQ Hearings Panel within 7 calendar days to appeal the decision.
- The hearing is non-public and allows the company to present its case for continued listing.
- The panel may grant additional time (up to 180 days in total) if it believes the company has a viable plan to regain compliance.
4. Suspension and Delisting
If the company does not appeal or the panel denies the appeal, NASDAQ will proceed to suspend trading and delist the stock. The company may then:
- Transfer to the OTC (Over-the-Counter) markets, such as the OTCQB or OTCID.
- Pursue relisting once it regains full compliance.
Consequences of Delisting
Delisting from the NASDAQ Capital Market can have significant negative impacts, including:
- Loss of investor confidence.
- Reduced liquidity and trading volume.
- Limited access to institutional investors or additional capital.
- Damage to the company’s reputation and creditworthiness.
However, delisting is not the end of the road. Many companies use the opportunity to restructure, improve compliance, and eventually reapply for listing.
Best Practices to Avoid Delisting
- Monitor listing standards regularly and communicate with NASDAQ when thresholds are approached.
- Engage legal and financial advisors to develop a robust compliance strategy.
- Act early—waiting until a notice is issued can limit your options.
- Maintain transparent investor relations, especially during periods of non-compliance.
Conclusion
Delisting from the NASDAQ Capital Market is a structured process designed to uphold market integrity and investor protection. While it can be disruptive, companies that act swiftly and engage with NASDAQ in good faith may be able to avoid delisting or return to compliance in a timely manner.
Companies should treat any sign of non-compliance as a serious warning and work proactively to address deficiencies—before the delisting process begins.
For more information about Nasdaq Listing Requirements or the Delisting Process or to speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at info@securitieslawyer101.com.
Hamilton & Associates | Securities Attorneys
Brenda Hamilton, Securities Attorney
200 E Palmetto Rd, Suite 103
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com
