An Initial Public Offering or IPO is a big step for any company. It is the process where a private company sells its shares to the public for the first time. This help the company raise money for growth. However, not every company can launch an IPO whenever it wants. The Securities and Exchange Board of India (SEBI) and stock exchanges like NSE and BSE have set strict rules. These rules protect investors from risky or fake companies. You must understand these eligibility criteria if you plan to invest or study the market.
Mainboard IPO Requirements
A Mainboard IPO is meant for large and well-established companies. These companies list their shares on the main platforms of the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE). To qualify for a Main board IPO, a company must have a post-issue paid-up capital of at least Rs 10 crores. This path is for businesses with a proven track record and large-scale operations.
The rules for these IPOs come from the SEBI ICDR Regulations 2018. Companies must show strong financial health. They must also prove their management is clean and experienced. There are two main ways a company can qualify for a Main board IPO. These are the Profitability Route and the QIB Route.
SEBI IPO Eligibility Criteria
SEBI provides two “Entry Norms” for companies. The first norm is for companies with consistent profits. The second norm is for companies that have high growth potential but might not meet the profit criteria yet.
| Feature | Profitability Route (Entry Norm I) | QIB Route (Entry Norm II) |
|---|
| Net Tangible Assets | Rs 3 crores in each of last 3 years | No specific limit |
| Operating Profit | Avg. Rs 15 crore in 3 of last 5 years | Not mandatory |
| Net Worth | At least Rs 1 crore in last 3 years | No specific limit |
| Issue Method | Fixed Price or Book Building | 100% Book Building |
| Allotment to QIBs | Up to 50% of the issue | At least 75% of the issue |
- Profitability Route (Entry Norm I)
This route is for stable companies. The company must have net tangible assets of at least Rs 3 crores in each of the three preceding years. If the company is making a fresh issue of shares, then cash or bank balances should not exceed 50% of these assets. The company must also show an average operating profit of at least Rs 15 crore. This profit should be visible in at least three years out of the last five years.
Sometimes a company changes its name before an IPO. In that case, 50% of the revenue from the previous year must come from the business under the new name. Additionally, the total issue size cannot exceed five times the pre-issue net worth of the company.
- QIB Route (Entry Norm II)
Some companies are legitimate and capable but do not meet the profit standards. SEBI allows them to bring an IPO through the QIB Route. QIB stands for Qualified Institutional Buyers. These include banks and mutual funds. Such companies must use the book-building process for their IPO. They must also reserve at least 75% of the total offer for QIBs. If the company fails to get enough institutional investors, it must refund all the money to the public.
SEBI Requirements for Directors, Promoters, and Investors
Financial numbers are not everything. SEBI also looks at the people behind the company. The founders, promoters, and directors must have a clean history.
- The company founders or promoters must not face any current disciplinary action.
- SEBI must not have barred the promoters or directors from the capital markets.
- The debarment period must be over before the company applies for an IPO.
- The promoters should not have any links with other companies that SEBI has banned.
- No director or promoter can be a “wilful defaulter” at a bank.
- No individual in the leadership can be a “Fugitive Economic Offender” under the 2018 Act.
- The promoters must hold at least 20% of the post-IPO equity to show their commitment.
NSE IPO Eligibility Criteria
The National Stock Exchange has its own set of additional rules. A company must satisfy these alongside SEBI rules to list on the NSE.€ny must also provide a special certificate to the NSE. This certificate confirms that no insolvency or bankruptcy proceedings are pending against the company. It also confirms that no court or NCLT has issued a winding-up petition against the business.
BSE IPO Eligibility and Other Requirements
The BSE follows similar capital requirements as the NSE. The post-issue paid-up capital must be at least Rs 10 crores. The total issue size must also be at least Rs 10 crores. The market capitalization of the company should stay above Rs 25 crores.
A company must pass through four stages at the BSE:
- In-principle Approval Stage: The exchange checks the initial documents.
- Issue Opening Stage: The exchange gives the green light to start the IPO.
- Basis of Allotment Stage: The exchange verifies how shares are distributed.
- Listing & Trading Approval: The shares finally start trading on the screen.
General IPO Requirements
The company must get permission to use the name of the BSE in its documents. It must also choose one exchange as the “Designated Stock Exchange.” The company must link with depositories like NSDL or CDSL. All promoter shares must be in digital or “demat” form before the filing. If any shares are only “partly paid,” the owners must pay the full amount or lose them. Finally, the company must deposit 1% of the issue amount with the exchange as a security deposit.
SME IPO Requirements
Small and Medium Enterprises (SMEs) often need money to grow. However, they are too small for the Mainboard. SEBI created a separate platform for them called NSE Emerge and BSE SME. These platforms have relaxed rules. The main rule is that the post-issue paid-up capital should not exceed Rs 25 crores.
BSE SME IPO Eligibility
The BSE SME platform helps smaller companies raise capital without the heavy burden of Mainboard rules.
| Criteria | Minimum Requirement |
|---|
| Net Worth | Rs 1 crore for the last 2 financial years |
| NetTangible Assets | Rs 3 crores in the last financial year |
| Track Record | 3 years of business operations |
| Operating Profit | Positive in 2 out of the last 3 years |
| Leverage Ratio | Not more than 3:1 |
Special Categories
Broking Companies: They need a net worth of Rs 5 crores in 2 of 3 years. Alternatively, they can show a net worth of Rs 25 crores in 3 of 5 years. Their tangible assets must be Rs 3 crores.
Micro Finance Companies: These firms must have Assets Under Management (AUM) of at least Rs 100 crores. They also need a client base of 10,000 people and must not accept public deposits.
NSE SME (Emerge) IPO Eligibility Criteria
The NSE Emerge platform also has specific entry gates for small businesses.
- Incorporation: The company must be an Indian company under the Companies Act.
- Capital: The post-issue paid-up capital must be Rs 25 crores or less.
- Track Record: The company or its promoters must have 3 years of experience.
- Financials: The company must have an operating profit of at least Rs 1 crore in 2 of the last 3 years.
- Cash Flow: The company must show positive cash flow and positive net worth.
- Offer for Sale (OFS): Selling shareholders cannot sell more than 50% of their holdings. The total OFS cannot be more than 20% of the total issue size.
- Clean Record: There should be no regulatory bans in the last 3 years.
- Cooling Period: If the NSE rejects an application, the company must wait 6 months to apply again.
The Merchant Banker plays a huge role here. The NSE will not accept an application if the Lead Manager had another draft document returned by the NSE in the last 6 months.
Conclusion
IPO approval process is hard work for any business. This is true for a large company is aiming for the main stock exchange or a smaller one is looking at platforms like NSE Emerge or BSE SME. SEBI, NSE, and BSE have strict rules to ensure that only financially stable and trustworthy companies can issue IPO. These rules check everything, like the company’s finances and profits, the promoters’ clean history, etc. This is all to protect investors. For a company, meeting these checks is the key to getting finances for growth and earning the public’s confidence.