In India, there are two prominent platforms available for SME IPOs: BSE SME and NSE Emerge. SME companies have the option to choose either of these platforms for their Initial Public Offerings.
For an SME company to proceed with an IPO, it must meet the eligibility criteria specified by both the stock exchanges and the Securities and Exchange Board of India (SEBI). The requirements for SME IPOs are relatively alike on the BSE and NSE exchanges.
It is important to note that SME IPOs differ from mainboard IPOs as they can only be listed on one exchange, rather than multiple exchanges.
NSE SME IPO Eligibility #
Below is the list of eligibility criteria for SMEs wishing to conduct their IPOs on the NSE Emerge platform.
Company Registration: #
The company should be registered in India under the Companies Act 1956/2013.
Paid-Up Capital: #
The post-issue paid-up capital should not exceed Rs 25 crores.
Track Record: #
The company should have a track record of at least three years.
Positive Net Worth: #
The company should have a positive net worth in at least two out of three financial years.
Winding Up Petition: #
The National Company Law Tribunal (NCLT) or a court should not have filed a winding up petition against the company.
Industrial and Financial Reconstruction: #
The issuer should provide a certificate stating that the company has not been referred to the Industrial and Financial Reconstruction Board (BIFR).
Insolvency and Bankruptcy Code: #
The issuer, promoting companies, and directors should not have been subject to any proceedings under the Insolvency and Bankruptcy Code.
Capital Market Access: #
The issuer, promoter, directors, promoter group, and selling shareholder should not be excluded from accessing the capital market by the Board.
Fugitive Business Offenders Act: #
The promoters, directors, founders, and investors should not be classified as fugitives or delinquents under the Fugitive Business Offenders Act 2018.
Investigation or Criminal Proceedings: #
Directors should provide documentation if they are under investigation or facing criminal proceedings.
Restrictive Clauses: #
Articles of incorporation should not contain restrictive clauses.
Disciplinary Proceedings: #
The issuing company promoters, promoter company(ies), group companies, or companies promoted by promoters/promoter company(ies) should not have any disciplinary proceedings in the past three years.
Payment Defaults: #
The company or its promoters should not have failed to pay interest or principal on bonds/fixed deposits and banks.
Litigation: #
In case of litigation, documentation should be provided regarding the nature, status, and details of the litigation.
Additional IPO Requirements: #
Application and Trading Lot Size: #
The minimum application and trading lot size is Rs 1,00,000.
Allottees: #
The minimum number of allottees in an SME IPO should be 50.
Underwriting: #
IPO underwriting is mandatory, with 15% of the issue to be underwritten by a merchant banker.
Market Maker: #
A market maker is mandatory for the IPO.
NSE SME IPO Documents #
Detailed documents list can be found on the NSE SME IPO website.
- Checklist for In-principle approval
- Check List- Final Listing
- IPO Registration Form
- Fixed Price Issue
- Book Building Issue
- Listing Agreement
BSE SME IPO Eligibility Criteria: #
- The issuer should be registered under the Companies Act, 1956.
- Post issue paid-up capital should not exceed Rs. 25 crores.
- Net worth should be positive.
- Net Tangible Assets should be Rs. 1.5 crore.
- The company should be in operation for at least three years. If the company has been in operation for less than three years, it should have been financed by banks/financial institutions/central or state government. It should have achieved a positive result (before depreciation and taxes) in any year of the last three years.
- If a company is converted into a corporation, it must have a positive cash balance (profit before depreciation and taxes). This should be the case for at least one year (of the last three years).
- The company must also have positive net assets.
- The company should have a functioning website.
- The company should support Demat securities trading. It must have an agreement with NSDL and CDSL custodians.
- The company should ensure that the promoters have not changed in the last one year since the submission of the BSE application for listing in the SME sector.
- The issuer should provide a certificate stating that the company has not been referred to the Industrial and Financial Reconstruction Board (BIFR).
- There should not be a winding petition against the company.
- The minimum size for the application and trading lot is Rs. 1,00,000. The minimum number of shareholders should be 50.
- Underwriting is mandatory. 15% of it should be underwritten by a merchant banker.
BSE SME IPO Documents: #
- The following documents are required for filing an IPO application with the stock exchanges:
- Listing Application Form
- Listing and trading approval documents
- Issue open fixed Issue documents
- Issue open book-building Issue format
- Company information in case of refund
- The basis of the allotment documents
Conclusion #
- An SME company can choose between the NSE Emerge or BSE SME platform to go public.
- The Merchant Banker assists the companies in choosing one of the two platforms.
- The Merchant Banker helps the issuer in compiling the required documents and information for filing an IPO application with the stock exchanges.
- The Merchant Banker contacts the exchange for clarification on the admission criteria if needed.
FAQs #
- Can SME go for an IPO? Yes, Small and Medium Enterprises (SMEs) can raise funds from the public through an Initial Public Offering (IPO) and get listed on the BSE/NSE exchanges. The process involves checking the SME IPO eligibility criteria, selecting a merchant banker, preparing the company for the IPO, working with the merchant banker to prepare the DRHP document, getting it approved by the preferred exchange, conducting roadshows to sell the IPO, opening and closing of IPO, allotment of shares, and finally, listing of the company’s shares on the stock exchange.
- What are SME listed companies? SME listed companies are small and medium enterprises that have raised funds from the public and 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, but with some differences such as trading in lots and being listed on only one of the exchanges.
- Can SME be a listed company? Yes, SMEs 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. The prerequisites for an SME company to apply for IPO through these platforms include a post-issue paid-up capital of not more than Rs 25 crores, a track record of at least three years, and positive net worth in at least two out of three financial years.
- Is it possible for a new business to go public with an SME IPO? 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. 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.
