SME IPO: In recent years, recently listed SME IPOs have gained attention as small and medium-sized enterprises (SMEs) raise funds through public offerings. By listing on platforms like BSE SME and NSE Emerge, these businesses can access capital without the complexities of a large IPO. However, they must meet specific eligibility criteria to ensure financial stability, legal compliance, and operational history, protecting both businesses and investors.

    General Eligibility Criteria for SME IPO

    Before we dive into the specific eligibility criteria for BSE SME IPO and NSE SME IPO, let’s look at the basic requirements for listing on these exchanges:

    1. Operating Profit Requirement

    The company must demonstrate an operating profit (earnings before interest, depreciation, and tax) of at least Rs. 1 crore for two of the last three financial years when filing the Draft Red Herring Prospectus (DRHP). This condition ensures the company has shown consistent profitability, indicating its potential for stable growth and the ability to attract investors.

    2. Offer for Sale (OFS) Limitations

    The Offer for Sale (OFS) component in the SME IPO cannot exceed 20% of the total issue size, and the selling shareholders can sell no more than 50% of their holdings. This rule ensures that the primary objective of the IPO is to raise capital for the company rather than allowing existing shareholders to exit in large numbers, maintaining a balance in ownership.

    3. General Corporate Purpose (GCP) Fund Limit

    The amount raised for general corporate purposes (GCP) through the IPO is capped at 15% of the total issue size or Rs. 10 crores, whichever is lower. This limit ensures funds are primarily directed towards business expansion and growth rather than vague or undefined purposes.

    4. Restrictions on Proceeds

    The funds raised through the IPO cannot be used to repay loans directly or indirectly from promoters, promoter groups, or related parties. This prevents the misuse of IPO funds to settle private financial matters and ensures that the raised capital is directed towards the company’s development.

    Detailed Eligibility Criteria for the NSE SME IPO

    For companies wishing to list their IPO on the NSE Emerge platform, they must meet the following specific criteria:

    1. Company Incorporation

    The company must be registered in India under the Companies Act, 1956 or 2013. This ensures that the company is legally established and operating within India.

    2. Operating Profit

    Like the BSE SME, the company must have operating profits for at least two of the last three years. This demonstrates the company has consistent growth and operational stability.

    3. Net Worth

    The company should have a positive net worth in at least two of the preceding three financial years. This ensures that the company is financially stable and can meet its obligations.

    4. Capital Structure

    The post-issue paid-up capital should not exceed ₹25 crores. This keeps the IPO within the SME domain and allows smaller businesses to access capital.

    5. Regulatory Compliance

    The company must not have been subject to any winding-up petitions filed by the National Company Law Tribunal (NCLT). This ensures that the company is not in financial distress.

    6. Certificate of Compliance

    The company must provide a certificate stating it has not been referred to the Industrial and Financial Reconstruction Board (BIFR). This assures that the company is not financially troubled.

    7. Promoter Integrity

    The promoters and directors of the company must not have been involved in any fraudulent or criminal activities. This ensures that trustworthy individuals are leading the company.

    Detailed Eligibility Criteria for BSE SME IPO

    For companies opting for the BSE SME platform, the following criteria apply:

    1. Company Registration

    The company must be registered in India under the Companies Act, 1956/2013. This ensures that the company is legally operating and eligible for listing on the exchange.

    2. Paid-Up Capital

    The post-issue paid-up capital must be under ₹25 crores, similar to the requirements of the NSE SME.

    3. Operating Profit

    The company must have made operating profits for at least two of the last three financial years. This indicates that the company has a sound financial track record.

    4. Legal Compliance


    Like NSE SME, the company should not have been involved in any legal disputes, such as winding-up petitions, and must not be investigated for any criminal activities.

    5. Additional Requirements

    The company must also provide a certificate stating it has not been referred to the Industrial and Financial Reconstruction Board (BIFR). Moreover, the promoters’ shareholding must be fully dematerialised.

    These requirements ensure that companies listed on the BSE SME IPO platform are financially viable and legally sound.

    Why Meeting the Eligibility Criteria is Important

    Meeting the eligibility criteria is crucial for SMEs wishing to list on either the NSE SME or BSE SME platforms. It’s not just about following regulations—it’s about presenting your company as financially stable, transparent, and ready for public investment. These criteria help ensure that investors put their money into businesses that can handle public scrutiny and operate efficiently and transparently.

    Meeting these standards boosts a company’s reputation, as investors are more likely to trust businesses that have met the requirements of these respected exchanges. Additionally, listing on a recognised exchange offers new growth opportunities, increased credibility, and better access to capital. To complete the process, ensure you have a demat account to manage your shares and enable easy trading once the IPO is live.

    Conclusion

    In summary, understanding and meeting the eligibility criteria for SME IPOs is essential for a successful listing on platforms like BSE SME or NSE Emerge. Ensuring financial stability, legal compliance, and a solid operational history will increase your company’s credibility and attract investors. These requirements safeguard both businesses and investors, making the IPO process smoother and more transparent.

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