SME IPO Eligibility

There are certain norms to be followed before listing an SME, such as track record, financial data, sponsor contribution, issue size, etc.

There are two SME IPO platforms in India: BSE SME and NSE Emerge. An SME company could choose one of these two platforms for its IPO.

The SME company has to meet the SME IPO eligibility criteria set by the stock exchanges and SEBI. The BSE and NSE exchanges have quite similar requirements for an SME IPO.

General Eligibility Criteria for SME IPOs in India

While specific requirements vary slightly between BSE SME and NSE Emerge, certain general criteria are common across both platforms. These are set by the Securities and Exchange Board of India (SEBI) and the respective exchanges.

1. Company Structure: The company must be a public limited company. This is a critical point, as private limited companies, partnership firms, and proprietorships cannot directly go for an IPO. They must first convert into a public limited company.
2. Net Tangible Assets: The company should have a minimum level of net tangible assets. The exact figure varies, but it generally needs to be above a certain threshold (e.g., ₹1 crore or ₹3 crore for the immediately preceding financial year).
3. Net Worth: A minimum net worth is usually required for the preceding financial years.
4. Track Record of Profitability: The company generally needs a track record of operational profitability for a certain number of years. Some exemptions or alternative criteria might apply if the company is in a specific sector or has significant net tangible assets.
5. Operating History: A minimum operating history (e.g., 3 years) is often required. This demonstrates the company's stability and consistent business operations.
6. Post-Issue Paid-up Capital: The post-issue paid-up capital of the company must fall within a specified range, typically not exceeding ₹25 crore.
7. No Referrals to BIFR/Winding Up Petitions: The company, its promoters, or directors should not have been referred to the Board for Industrial and Financial Reconstruction (BIFR) or have any winding-up petitions pending against them.
8. No Default in Loan Repayments: The company should not have any history of defaulting on loan repayments to financial institutions or banks.
9. Disclosures and Compliances: The company must ensure full compliance with all SEBI regulations, Companies Act provisions, and other applicable laws. Comprehensive disclosures regarding financial statements, business operations, risks, and promoter details are mandatory.
10. Compulsory Market Making : Unlike mainboard IPOs, all SME IPOs require a compulsory market maker for a specified period post-listing.
11. OFS (Offer for Sale) Component: If the issue includes an OFS component, it must be capped at 20% of the total issue size . Until recently (June 2025), SME IPOs could have 100% OFS component in IPO.
12. Usage of IPO proceeds : IPO proceeds must not be used to repay loans or liabilities owed to promoters, group companies, or related parties. This was allowed till June 2025.

In case of a change in company name in the past year, at least 50% of the revenue must be derived from activities aligned with the new name.

BSE SME Exchange Eligibility Criteria

The BSE SME Platform is a dedicated stock exchange segment under the Bombay Stock Exchange (BSE), designed to help Small and Medium Enterprises (SMEs) access equity funding through IPOs. To list on the BSE SME Exchange, companies must meet specific eligibility criteria set by BSE and SEBI.

Below is a detailed breakdown of the eligibility requirements for BSE SME listing:

Important Notes

• Cooling-off period: Minimum 6 months gap after SEBI/exchange rejection or withdrawal before reapplying.
• Demat Trading: Agreement with both NSDL and CDSL mandatory.
• No promoter changes allowed in the 1 year before filing for SME listing on BSE.

NSE Emerge Eligibility Requirements

The NSE SME Platform, known as NSE Emerge is a dedicated stock exchange segment under the National Stock Exchange (NSE), designed to help Small and Medium Enterprises (SMEs) access equity funding through IPOs. To list on the NSE SME Exchange, companies must meet specific eligibility criteria set by NSE and SEBI.

Below is a detailed breakdown of the eligibility requirements for NSE SME listing:

NSE SME IPO Checklist

Before applying for listing on NSE SME (EMERGE) , ensure the following is in place:

• 3 years of operational or promoter business track record
• Financial statements with profit & positive cash flow
• Post-issue capital ≤ ₹25 crore
• DRHP preparation with qualified Merchant Banker
• Promoter holding ≥ 20% post-issue (locked in for 3 years)
• No recent regulatory or legal complications
• Public issue not aimed at repaying promoter loans
• Website and digital presence of the company

NSE SME IPO Rejection & Cooling Off

If an applicant company’s SME IPO application has been rejected by NSE , the company is required to observe a cooling-off period of 6 complete months before it can reapply for listing on the NSE EMERGE platform

Requirements and Process for Different Business Structures to Issue an IPO

As established, only a public limited company can issue an IPO in India. Thus, before proceeding with an IPO, the issuer company must comply with structural requirements as laid down under the Companies Act, 2013:

• Sole proprietorships and partnership firms must be converted into public limited companies . Conversion should maintain business continuity to support track record requirements.
• Private limited companies must also convert into public limited companies to be eligible to raise capital via an IPO.
• A minimum waiting period of 6-12 months from the date of conversion is generally observed before proceeding with filing for an IPO.
• The company must maintain clear documentation proving the continuity of business and promoter control post-conversion.

Legal Status and conversion process

1. Private Limited to Public Limited Company

Most SMEs start as private limited companies and need to convert before going for a public listing. Steps:

• Board Meeting: Approve conversion and schedule Extraordinary General Meeting (EGM).
• EGM: Shareholders pass a special resolution (75% approval). Company name and structure are updated.
• Registrar of Companies (ROC) Filing: Submit Forms MGT-14 (used for filing resolutions passed) and INC-27 (Used for applying for the conversion of a company) with updated Memorandum of association (MOA) & Articles of association (AOA).
• Approval: ROC issues a new Certificate of Incorporation.

2. Partnership Firm to Public Limited Company

Partnership firms must first convert to a private limited company. Steps:

1. Convert to Private Limited:
   • Create an agreement to transfer business to a new company.
   • Incorporate the private limited company.
   • Transfer all assets and liabilities.
   • File required forms with ROC.
2. Convert to Public Limited:
   • Follow the same steps as private to public conversion.

3. Proprietorship to Public Limited Company

Like partnership firms, proprietorships need a two-step conversion. Steps:

1. Convert to Private Limited:
   • Register a new private limited company.
   • Transfer business via a Business Transfer Agreement.
   • File incorporation documents with ROC.
2. Convert to Public Limited:
   • Follow private to public conversion steps.

Governance, Compliance, and Transparency Norms

Issuer companies are expected to maintain a transparent and compliant business structure:

• All equity shares must be in dematerialized (demat) form .
• The company must operate a functional website that discloses statutory, financial, and corporate information.
• The business should not have any regulatory penalties, litigation history, or defaults , particularly involving promoters, directors, or group companies.
• The issuer must adhere to disclosure obligations under SEBI’s ICDR Regulations and relevant Companies Act

Issue Size, Investor Base, and Underwriting

Issuer companies planning to offer shares through the SME IPO route must design their offering as per the following terms:

• Minimum Issue Size : Typically, ₹10 crore or more, depending on the exchange and sectoral norms.
• Minimum Number of Allottees : At least 200 public investors must be allotted shares in the IPO. (Until recently (June’25) the minimum number of allotees was 50).
• Minimum Application Size : Minimum 2 lots. (Until recently (June’25), this was ₹1 lakh per application).
• Underwriting Requirement : The IPO must be 100% underwritten . The lead merchant banker must underwrite at least 15% of the issue on their own books.
• Market Making : A SEBI-registered market maker must be appointed for a minimum period of 3 years post-listing , ensuring share liquidity.

Key Takeaways

• Only public limited companies are eligible for SME IPOs.
• Businesses must convert from private, partnership, or proprietorship structures if needed.
• The conversion process is essential but can be time-consuming.
• BSE SME and NSE Emerge have slightly different requirements, but some general eligibility criteria are common to both platforms.