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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.

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Content:

  1. General Eligibility Criteria for SME IPOs in India
  2. BSE SME Exchange Eligibility Criteria
  3. NSE Emerge Eligibility Requirements
  4. Requirements and Process for Different Business Structures to Issue an IPO
  5. Legal Status and conversion process
  6. Governance, Compliance, and Transparency Norms
  7. Issue Size, Investor Base, and Underwriting

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:

BSE SME listing criteria

Criteria

Requirement

Incorporation

Incorporated under Companies Act, 1956

Post-Issue Paid-Up Capital

Not more than ₹25 crores

Net Worth

Minimum ₹1 crore for the preceding 2 full financial years

Net Tangible Assets

Minimum ₹3 crores in the last preceding full financial year

Track Record

· Minimum 3 years of operations (including predecessor firm if applicable)

· Audited financial results for at least 1 full financial year

· If no 3 years track record, project must be appraised and funded by NABARD, SIDBI, banks

Operating Profit (EBIDTA)

· Positive operating profit in 2 out of last 3 years

· Minimum 1 full financial year of positive operating profit required

Leverage Ratio

Not more than 3:1

Regulatory Compliance & Defaults

· No suspension/trading bans on promoters or companies

· Directors not disqualified or debarred

· No pending defaults on interest/principal payments

· No winding-up petition or NCLT proceedings

Promoter Shareholding

100% promoter shares in dematerialized form

Company Website

Functional website mandatory

Board Composition

Complies with Companies Act, 2013

Change of Name (If Applicable)

If name changed within 1 year, ≥50% revenue must come from new business activity

Additional Criteria for Specific Sectors - BSE SME listing

Sector

Additional Eligibility

Broking Companies

· Net worth ≥ ₹5 crores and PBT ≥ ₹5 crores in 2 of last 3 years OR net worth ≥ ₹25 crores in 3 of last 5 years

· Net tangible assets ≥ ₹3 crores, post-issue paid-up capital ≥ ₹3 crores

Microfinance Companies

Asset Under Management ≥ ₹100 crores, client base ≥ 10,000, no public deposits accepted

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 Listing Criteria

Parameter

Listing Criterion

Incorporation

Company must be incorporated in India under the Companies Act, 1956 or 2013.

Post-Issue Paid-Up Capital

Must not exceed ₹25 crore (face value).

Track Record

At least 3 years of:

I. the applicant company, or

II. promoter/promoting company (in or outside India), or

III. converted firm (prop/partnership). Promoters must have 3+ years' experience in the same line of business and hold at least 20% of post-issue equity.

Financial Criteria

· Operating profit (EBITDA) ≥ ₹1 crore in any 2 of the last 3 financial years

· Positive net worth

· Positive Free Cash Flow to Equity (FCFE) in at least 2 of last 3 years

Offer for Sale (OFS)

· OFS portion must not exceed 20% of total issue size

· Selling shareholders can't sell more than 50% of their holdings

Other Conditions

· Company not referred to BIFR or under IBC proceedings

· No admitted winding-up petition

· No major regulatory action in past 3 years

· No loan repayment to promoters/related parties from IPO proceeds
- No rejection by NSE in last 6 months

Disclosures in Offer Document

Must disclose:

· Regulatory actions (past 1 year) on promoters/group companies

· Defaults in payments to banks/investors (past 3 years)

· Ongoing/past litigations

· Criminal charges or serious investigations involving directors

Merchant Banker Clause

Lead Merchant Banker should not have had a draft offer document returned by NSE in the last 6 months

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.

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.
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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.
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Frequently Asked Questions

Small and medium enterprises (SMEs) can raise funds from the public through an initial public offering (IPO) and list on the BSE/NSE exchanges. In 2012, the NSE Emerge and BSE SME platforms were launched.

Steps for SMEs to go public

  • Check the SME IPO eligibility criteria.
  • Select a merchant banker to work with. We can help.
  • Prepare the company for the upcoming IPO (in terms of accounting, sales and strategy).
  • Work with the merchant banker to prepare the DRHP document and get it approved by the preferred exchange (BSE or NSE).
  • Roadshows to sell the IPO.
  • Opening and closing of IPO.
  • Allotment of shares.
  • Listing of the company's shares on the stock exchange.

 

Discuss this question

Listed SMEs are small and medium enterprises that have raised funds from the public. These companies are listed on the NSE or BSE through a SME IPO.

Shares of listed SMEs trade in a similar manner to all other listed shares, with some differences:

  • SME shares are traded in lots. A lot consists of x number of shares. For example, you can buy 1 share of Reliance Industries, but not 1 share of an SME company. There must be the minimum x number of shares in a lot as specified by the stock exchange.
  • SMEs are listed on only one of the exchanges - either the BSE or the NSE.

The SME IPO platforms enable new early-stage companies and small, high-value organizations to raise capital so they can develop, grow and move to the main exchanges (BSE and NSE).

Note:

  • Most listed SMEs move to the mainboard after two years.
  • All brokers offer the facility to trade in listed SME companies.
  • Trading volume in listed SME companies is relatively low.

 

Discuss this question

Yes, SMEs (small and medium enterprises) can become a listed company by listing their shares on the BSE or NSE. The BSE SME and the NSE Emerge platform help SME companies raise capital from the public and get listed on stock exchanges.


An SME company with the following prerequisites can apply for IPO through BSE SME and NSE Emerge platforms:

  • Post-issue paid-up capital of not more than Rs 25 crores.
  • A track record of at least three years.
  • Positive net worth in at least two out of three financial years.

 

Discuss this question

Yes, a new company or startup can go public with an SME IPO. The BSE offers BSE Startups and the NSE offers NSE EMERGE-ITP platforms for startups. These platforms allow startups to go public with or without an IPO.

Note: Listing of startups in the Indian stock market has not been very successful. As of April 2023, of the 75 or so companies listed on the startup platform, only a couple were actively trading.

The criteria for a startup to go public are different from those for a small or medium enterprise. A startup with a turnover of Rs 10 crore can apply for an IPO on the BSE SME and NSE SME. If a company has not operated for three years and has received funding from private equity or angel investors, or funding from a public bank or financial institution, it can apply for an IPO.

The BSE SME and NSE SME platforms have the following criteria for a start-up or new company:

  • Post Issue Paid Up Capital: not more than Rs 25 crores.
  • Track Record: With a three-year track record, annual revenue should be Rs 10 crores, with an annual growth rate of 20% over the previous year.
  • Positive net worth: The issuer should have positive net worth and have achieved operating profit (earnings before interest, depreciation, amortization and taxes) for at least the last two or three fiscal years. If the issuer has been in operation for less than three years, it should be financed by a public bank or financial institution.
  • Other mandatory requirements: The issuer must not have been referred to the Industrial and Financial Reconstruction Board. There must be no stock market disciplinary action by the NCLT or court dissolution petition.
  • Disclosure: Group companies must not have been subject to any stock market disciplinary actions in the past 1 year, must not be delinquent in interest and principal payments, must provide litigation status, and must provide any criminal proceedings against any of the directors.

 

Discuss this question

Yes, a small company can go public by offering its shares to the public through an Initial Public Offering (IPO) and getting listed on dedicated SME (Small and Medium Enterprises) platforms of the BSE and NSE stock exchanges, which make it easier for smaller companies to list.

To go public, a small company needs to meet certain eligibility criteria, such as minimum net worth, profitability or track record requirements, and compliance standards set by regulators.

 

Discuss this question

Yes, a small business can be publicly traded. This is usually done by offering shares to the public through an Initial Public Offering (IPO) and listing on a stock exchange. In India, we have special platforms designed for smaller companies, such as the BSE SME and NSE Emerge.

To become publicly traded, a small business must meet certain eligibility criteria, including minimum net worth, operational track record, and compliance with regulatory and disclosure requirements.

 

Discuss this question

To list your company on a stock exchange, you typically need to follow these steps:

  • Meet eligibility criteria set by the exchange and regulator.
  • Appoint a merchant banker and other advisors.
  • Prepare and file a prospectus.
  • Get regulatory and exchange approvals.
  • Launch IPO and invite investor applications.
  • Allot shares and list on the stock exchange.

 

Discuss this question

No, a partnership firm cannot directly issue an IPO.

To issue an IPO and offer shares to the public, a business must be a public limited company.

Thus, a partnership firm can issue an IPO provided it follows below steps:

  • Convert into a public limited company.
  • Fulfil eligibility requirements set by the regulator and the stock exchange.
  • Then proceed with an IPO to raise funds and get listed.

 

Discuss this question