Mainboard & SME IPO Eligibility Criteria

Over the past few years, the IPO market in India has witnessed rapid growth, particularly within the SME IPO segment. Consequently, an increasing number of companies are now opting for the stock market route to facilitate business expansion and raise capital. However, not every company can launch an IPO, as doing so requires fulfilling specific mandatory regulations and financial criteria established by SEBI, the NSE, and the BSE. In this blog, we will explain in simple language the eligibility criteria for Mainboard and SME IPOs, covering aspects such as company age, minimum net worth, profitability, and other essential requirements.

What Is an IPO? 

An IPO (Initial Public Offering) is the process through which a private company issues its shares to the general public in the stock market for the very first time. Following an IPO, the company gets listed on a stock exchange, such as the NSE or BSE. Companies raise funds through an IPO to finance business expansion, launch new projects, reduce debt, and enhance their brand value.

Main Types of IPOs in India

IPO Type	Suitable For	Listing Platform
Mainboard IPO	Large Companies	NSE / BSE Mainboard
SME IPO	Small & Medium Businesses	NSE Emerge / BSE SME

Why SEBI Has IPO Eligibility Rules?

Before investing in an IPO, it is essential for investors to have confidence in the company. To uphold this trust and ensure that only credible companies enter the market, SEBI has established a set of eligibility rules.

• To Safeguard Investors: If a company’s financial health is weak or its track record is questionable, investors’ capital could be put at risk. Therefore, SEBI conducts a thorough scrutiny of the company beforehand.
• To Provide Opportunities Exclusively to Robust Companies: Not every company is permitted to launch an IPO directly. It is mandatory for a company to possess a sound business track record, profitability, and regulatory compliance to ensure that only trustworthy entities are listed on the market.
• To Ensure Accurate Information Reaches Investors: Prior to an IPO, companies are required to publicly disclose details regarding their income, debt, risk factors, and business operations. This enables investors to gain a comprehensive understanding of the company before making an investment decision.
• To Maintain Confidence in the IPO Market: When market regulations are robust, it fosters increased confidence among both retail and institutional investors. This is precisely why India’s IPO market continues to expand steadily.
• SME IPO Regulations Are Now Stricter Than Ever: Over the past few years, SEBI has updated several regulations pertaining to SME IPOs. The focus has now shifted beyond mere revenue generation to place greater emphasis on profitability, cash flow, and corporate governance.

Read Also: Difference Between Mainboard IPO and SME IPO

Mainboard IPO Eligibility Criteria in India 

To launch a Mainboard IPO, companies must fulfill several financial and compliance rules prescribed by SEBI.

1. Minimum Company Track Record

A company is generally required to possess a business track record of at least three years. Additionally, audited financial statements for the preceding years are mandatory. If the entity previously operated as an LLP or Partnership firm and subsequently converted into a company, its prior track record may, in certain instances, be taken into consideration. 

2. Minimum Net Worth Requirement

For a Mainboard IPO, the company’s Net Worth must have been at least ₹1 crore during each of the preceding three years. Net Worth is defined as the residual value obtained by deducting the company’s total liabilities from its total assets. This metric serves as an indicator of the company’s financial strength.

Requirement	Mainboard IPO Criteria
Minimum Net Worth	₹1 Crore
Track Record	3 Years
Financial Statements	Audited Required

3. Net Tangible Assets Requirement

The company’s Net Tangible Assets must amount to at least ₹3 crore over the preceding three years. This includes land, machinery, and other physical assets. Intangible assets such as goodwill or brand value are not included in this calculation.

4. Profitability Requirement

According to SEBI’s Profitability Route, the company’s Average Pre-Tax Operating Profit must be at least ₹15 crore; this profitability must be demonstrated in at least three out of the preceding five years. For this reason, many loss-making startups are unable to launch an IPO through this route.

5. Paid-Up Capital & Market Capitalisation

For a Mainboard IPO, the company’s post-issue Paid-Up Capital is generally required to be ₹10 crore or more. Furthermore, the company’s Market Capitalisation must not fall below approximately ₹25 crore.

Financial Criteria	Requirement
Post-Issue Paid-Up Capital	₹10 Crore+
Market Capitalisation	₹25 Crore+
Issue Size Limit	Up to 5x Net Worth

6. QIB Route for Loss-Making Companies:

Some startups and tech companies are unable to meet profitability criteria. In such cases, they can utilize the QIB route. Under this mechanism, the IPO is launched through the book-building process, and it is mandatory to allot at least 75% of the issue to Qualified Institutional Buyers (QIBs).

SME IPO Eligibility Criteria in India 

To conduct an SME IPO, companies are required to fulfill certain essential financial and compliance regulations established by NSE Emerge and BSE SME. These regulations serve to determine whether or not a company is prepared for a public listing.

1. Minimum Net Worth & Capital Requirement:

For an SME IPO, a company’s Paid-Up Capital must generally be ₹1 crore or more. Additionally, its Net Tangible Assets must amount to at least ₹3 crore. These criteria serve as indicators of the company’s financial stability and asset strength.

Requirement	SME IPO Criteria
Minimum Paid-Up Capital	₹1 Crore+
Net Tangible Assets	₹3 Crore+
Post-Issue Paid-Up Capital	Up to ₹25 Crore

2. Minimum Business Track Record:

It is considered essential for the company to possess an operational track record spanning at least three years. Furthermore, the company must have maintained a positive net worth over the preceding two years, thereby demonstrating that the business has been operating on a consistently stable basis.

3. Clean Financial & Compliance Record:

The company’s audit record must be unblemished. Additionally, there should be no instances of major loan defaults, serious legal disputes, or regulatory actions against the company. This serves to bolster investor confidence.

4. Stock Exchange Listing Requirements:

In addition to SEBI regulations, platforms such as NSE Emerge and BSE SME have their own specific listing norms. These include requirements regarding minimum offer size, mandatory disclosures, and compliance obligations, all designed to ensure that the IPO process remains highly transparent.

5. Mandatory Market Making:

In the context of an SME IPO, the appointment of a Market Maker is mandatory. The primary objective of this requirement is to maintain liquidity in the shares following their listing, thereby facilitating ease of trading both buying and selling for investors.

Read Also: IPO Application Eligibility Criteria

Mainboard & SME IPO Listing Requirements

Merely possessing profits and a substantial net worth is not sufficient to launch an IPO. A company must also fulfill specific mandatory listing regulations stipulated by the Stock Exchange and SEBI.

• Minimum Share Capital: For a Mainboard IPO, a company’s Paid-Up Share Capital is typically required to be ₹10 crore or higher. This serves as an indicator that the company possesses a robust business and financial foundation.
• Minimum Shareholder Requirement: Prior to an IPO, it is considered mandatory for the company to have a minimum of 7 shareholders. This constitutes one of the fundamental prerequisites for a Public Limited Company.
• Audited Financial Reports: The company’s financial statements for the preceding three years must be duly audited. Furthermore, the Audit Report should not contain any material irregularities or significant adverse remarks.
• DRHP Filing: Before launching an IPO, the company is required to submit a DRHP (Draft Red Herring Prospectus) to SEBI. This document provides comprehensive details regarding the company’s business operations, financials, risk factors, and the IPO itself, thereby ensuring that investors have access to accurate and complete information.

Mainboard & SME IPO Filing Process in India

Launching an IPO is a lengthy and regulatory-intensive process for any company. It involves several critical stages, ranging from documentation to obtaining SEBI approval and listing.

• Appointment of Merchant Banker: Before initiating an IPO, the company selects a Merchant Banker or Lead Manager. These entities manage the planning, valuation, documentation, and the entire listing process of the IPO.
• DRHP Submission: Subsequently, the company submits the Draft Red Herring Prospectus (DRHP) to SEBI. This document outlines the company’s business operations, financial performance, risk factors, and the objectives of the IPO.
• SEBI Verification: SEBI scrutinizes all submitted documents and financial details. If any information is found to be deficient, the company may be required to provide clarifications or submit additional documentation.
• IPO Opening & Listing: Once approval is granted, the IPO opens for investors. Upon the completion of the share allotment process, the company’s shares are listed on the stock exchange, and trading commences.

Conclusion 

Both Mainboard and SME IPOs have their own distinct rules and eligibility criteria. For any company, possessing a strong financial record, ensuring proper compliance, and maintaining a clean business history are considered essential prerequisites before launching an IPO. If a company undertakes adequate preparation in advance, the IPO process can facilitate rapid business expansion and help build trust within the market. Invest in IPOs with zero brokerage on Pocketful. Open your Demat account with Zero AMC charges and enjoy a seamless investing experience with advanced trading tools and smart market insights.

NO.	Check Out These Interesting Posts You Might Enjoy!
1	What is Pre-IPO Investing?
2	What is the IPO Cycle – Meaning, Processes and Different Stages
3	What are the Different Types of IPO in India?
4	Why Invest in an IPO and its Benefits?
5	Best Apps for IPO Investment in India