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IPO Eligibility

A company wishing to go public must comply with the regulations laid down by the government authorities (SEBI) and the stock exchanges (BSE and NSE). There are certain IPO approval norms in India that a company must meet before it can go public.

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Content:

  1. Mainboard IPO Requirements
  2. SME IPO Requirements

This chapter covers the IPO norms for Mainboard and SME IPO , their requirements and pre-IPO eligibility criteria.

1. Mainboard IPO Requirements

A Main Board IPO is an initial public offering of large and established companies with a paid-up capital of at least Rs 10 crores. A Main Board IPO is a regular IPO listed and traded on the stock exchange platforms of the NSE/BSE.

The listing standards and eligibility requirements for Mainboard IPOs are set out in the SEBI ICDR Regulations 2018 .

1.1 SEBI IPO Eligibility Criteria

SEBI has prescribed two routes by which a company can qualify as an issuer of IPOs.

1.1.1 Profitability Route (Entry Norm I)

The companies must meet all the following conditions in terms of profit standards to be eligible for an IPO through this route:

  • The company should have net tangible assets of at least Rs 3 crores in each of the three preceding years.
  • For fresh issue (not OFS ), of the above Rs 3 crores of tangible assets, not more than 50% should be cash or cash equivalent.
  • The company should have an average operating profit (before tax) of at least Rs 15 crore in any of the three years out of the last five years.
  • In case of a name change, 50% of the revenue generated in the previous year should be from the business carried on under the new name.
  • The issue size should not exceed five times the net worth of the company before the issue (pre-issue).
1.1.2 QIB Route (Entry Norm II)

The QIB route is an alternative route developed by SEBI for genuine, capable and legitimate companies that are unable to meet strict profitability parameters. The companies going for IPO through the QIB route have to ensure that:

SEBI requirements for directors/promoters/founders/investors
  • There is no disciplinary action against the company founders/promoters/directors/selling shareholders.
  • The promoters/directors/founders/investors/ issuing company should not be barred from accessing the capital markets . The company cannot apply for an IPO until the debarment period has expired.
  • The promoters/managers/founders/investors should not be affiliated with another company that is excluded from access to capital markets.
  • The promoters/directors/founders/investors should not be defaulters.
  • The promoters/directors/founders/investors must not be classified as fugitive offenders as defined in the Fugitive Economic Offenders Act 2018.
  • The promoters should individually or collectively own at least 20% of the equity after the IPO.

1.2 NSE IPO Eligibility Criteria

In addition to the IPO guidelines prescribed by SEBI, the NSE requires that the issuing company meet the following eligibility criteria:

  • At least one promoter should have at least 3 years of experience in the same industry.
  • The issuing company must submit to the NSE the annual reports for the last three fiscal years.
  • The company has a positive net worth . (This clause is applicable to companies with an issue size of less than Rs 500 Cr).
  • The post-issue paid-up equity of the company should be more than Rs 10 Cr.
  • Market capitalization should be more than Rs 25 Cr.
  • The company should provide the Exchange with a certificate confirming that:
    • There are no proceedings pending against the issuer under the Insolvency and Bankruptcy Law.
    • The company has not received a winding-up petition from the NCLT (National Company Law Tribunal).

1.3 BSE IPO Eligibility

Equity and market capitalization requirements are the same for the NSE and the BSE. According to BSE,

  • The minimum paid-up capital of the issuing company after the issue should be Rs 10 Cr.
  • The minimum issue size should be Rs 10 Cr.
  • The minimum market capitalization of the issuing company should be Rs 25 Cr.

You need to follow the BSE Main Board IPO checklists below and submit the required documents and information at each stage.

Other IPO Requirements

  • The company should obtain prior consent from the BSE to use the name of the BSE in its prospectus or offer-for-sale documents.
  • The issuing company should file an application with one or more exchanges and designate one exchange as the Designated Stock Exchange .
  • The issuer should have an arrangement with a depository (CDSL and NSDL) to take care of dematerialization before and after the issue.
  • The promoter's shares should be in demat form before filing the offer documents .
  • The partly paid-up shares should either be fully paid up or forfeited before the filing of the offer document.
  • The issuer should deposit 1% of the issue amount as a deposit with the designated stock exchange before the commencement of the issue.

2. SME IPO Requirements

SME IPO means an initial public offering of small and medium-sized enterprises (SME). Like any other company, an SME needs capital to drive its business forward. However, since SMEs do not have an extensive track record, it is usually difficult for them to raise funds from financial institutions or conduct a regular IPO.

To give SMEs and startups an equal chance to raise funds from the general public, the NSE and the BSE have established a separate SME IPO platform, NSE Emerge and BSE SME , respectively, for the listing and trading of SMEs.

SEBI relaxes IPO norms for SME IPO s compared to mainboard IPOs. The post-issue paid-up capital of the company issuing SME IPO should not exceed Rs 25 crores. The other eligibility requirements for SME IPO company directors/promoters/investors remain the same as for a regular IPO, where the said persons should not be defaulters, offenders or disqualified from accessing the capital markets.

In addition to the above criteria, SMEs must also meet other eligibility requirements prescribed by the exchanges. The criteria for SME IPO are explained in detail below.

2.1 BSE SME IPO Eligibility

SMEs must meet the following criteria set by the BSE SME platform for issuing SME IPO .

Eligibility Requirement for BSE SME IPO

Eligibility

Eligibility Requirement

Net worth

At least Rs 1 crore for 2 preceding full financial years

Net Tangible Assets

Rs 3 crores in the last preceding financial year

Track record (operations)

At least 3 years

Operating profit

Positive for 2 out of 3 latest financial years.

Leverage ratio

Not be more than 3:1.

Read BSE SME IPO Eligibility chapter for more detail.

Additional Eligibility Criteria for Broking Companies

If the applicant company is a broking company, it needs to satisfy below additional criteria apart from the above.

Net worth and Profit

· Minimum Rs. 5 crores each in any 2 out of 3 financial years.

· Or Net worth of at least Rs. 25 crores in any 3 out of 5 financial years.

Net Tangible Assets

Rs. 3 crores as per the latest audited financial results.

Post issue paid up capital

Rs. 3 crores

Additional Eligibility Criteria for Micro Finance Companies

If the applicant company is a micro finance company, it needs to satisfy below additional criteria apart from the above.

Asset Under Management

Rs 100 crores+

Client Base

10,000+

Public Deposit

None

2.2 NSE SME (Emerge) IPO Eligibility Criteria

Criteria

Requirement

Incorporation

Must be incorporated in India under Companies Act, 1956/2013

Post-Issue Paid-Up Capital

≤ ₹25 crore

Track Record

3 years (company/promoter/converted firm); promoter ≥3 years’ experience in same industry

Promoter Holding

At least 20% post-issue equity

Financials

Operating profit ≥ ₹1 crore in 2 of last 3 FYs, positive net worth & positive cash flow

OFS Limit

≤ 20% of issue size; selling shareholders can’t sell >50% of holdings

Regulatory Compliance

No BIFR/IBC cases, no winding-up petition, no regulatory ban in last 3 years

Cooling-Off Period

6 months gap if earlier application rejected by NSE

Merchant Banker

Lead Manager should not have had DRHP returned by NSE in last 6 months

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Frequently Asked Questions

A company must meet the guidelines prescribed by SEBI and the stock exchange in order to conduct an IPO.

1. SEBI IPO Eligibility Criteria (Entry Norms)

  1. Profitability Route
  2. QIB Route
    • Book Building Process.
    • Allocation of 75% to QIB.
    • Refund IPO Money, if allotment criteria are not met.
    • NSE IPO Eligibility Norms (NSE IPO Requirements)

2. NSE IPO Eligibility Norms (NSE IPO Requirements)

  • Annual Reports of 3 years.
  • Promoter Experience of 3 years.
  • No pending proceedings for Insolvency or Bankruptcy.
  • No winding up notice received.
  • Positive Net worth.
  • Post Issue paid-up capital > Rs 10 crores.
  • Market Capitalization > Rs 25 crores.

3. BSE IPO Eligibility Norms (BSE IPO Requirements)

  • Post-issue paid-up capital > Rs. 10 crores.
  • Issue size > Rs. 10 crores.
  • Market capitalization > Rs. 25 crores.

4. Other Prerequisites for Company /Promoters/Directors/Investors

  • No disciplinary action.
  • Not under capital markets debarment period directly or through association with any other corporation.
  • Cannot be defaulters, offenders or fugitive.
  • Own at least 20% of post-IPO equity capital.
Discuss this question

A company can conduct an IPO if it meets the listing norms prescribed by SEBI and other criteria set by the NSE and BSE.

For a company to issue an IPO, it should have :

  • Positive Networth.
  • Market capitalization of more than Rs 25 crores.
  • Post Issue paid-up capital of more than Rs 10 crores.
  • Satisfy either of the below SEBI IPO Entry Norms.
    1. Profitability Route (Entry Norm I)
      • Net Tangible Assets -Rs 3 crores (Cash and Cash Equivalent not more than 50% in case of Fresh Issue)
      • Net Worth - Rs 1 crore
      • Average Operating Profit -Rs 15 crores.
      • In case of a name change, 50% of the revenue should be from activity under the new name.
    2. QIB Route
Discuss this question

Yes, a private company can issue an IPO if it decides to go public.

By going public, a company invites the public to invest in the company's stock for the first time. With an IPO, a company intends to be listed on the stock exchange to be publicly traded.

Discuss this question

A company goes public with an IPO when it offers its shares to the general public for the first time. A listed company may issue rights or conduct a follow-on public offering (FPO) or an offer for sale (OFS) if it wishes to raise additional capital.

Discuss this question

Yes, loss-making companies can conduct an IPO in India through the QIB route, where they must allocate at least 75% of the net offering to qualified institutional buyers and the issue should be book-built.

However, if the prescribed allotment criteria are not met, the company will have to refund the entire subscription money for the IPO to the investors.

Discuss this question

A company can issue shares more than once, but that public offering is known as Follow-on public offering (FPO).

IPO is the term for the very first public offering of a company when it goes public. All subsequent issues that follow the first offering are called FPO.

Discuss this question

An IPO helps a company get listed on the stock exchange for the first time.

After listing, a company may conduct a follow-on public offering (FPO), a right offering, or an offer for sale (OFS).

Discuss this question