IPO Eligibility

When a private company presents its initial stock offering to the public investment, it obtains a public listing and funding through an Initial Public Offering (IPO). The ability to launch an IPO remains unavailable to every company. The Securities and Exchange Board of India (SEBI), together with NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) introduces particular requirements that companies must fulfill to qualify for listing.

This guide discusses the fundamental criteria that businesses need to fulfill for both Mainboard IPOs and SME IPOs.

Mainboard IPO Requirements (Eligibility for Large Companies)

A well-established company can perform a public offering through the Mainboard IPO once it fulfills demanding financial and operational standards. These companies obtain stock exchange listings at NSE Emerge as well as BSE Mainboard.

Eligibility Criteria for Mainboard IPO

1. Company's Net Worth

• To qualify for a mainboard listing the company needs at least ₹3 crore net tangible assets across its previous three years.
• This excludes deferred tax assets.

2. Company’s Profitability

• To list on Mainboard, a company needs to prove at least a ₹15 crore average pre-tax operating profit which must occur in three years out of the past five years.
• All listed Mainboard companies must have strong financial stability before being eligible for the exchange platform.

3. Paid-up Capital

• After its IPO the company needs to maintain at least a ₹10 crore paid-up capital.

4. Minimum Issue Size

• The minimum IPO issue size needs to exceed ₹25 crore.

5. Public Shareholding Requirement

• The public should maintain ownership of 10% to 25% of the total stock capital after issuing shares to investors through IPO.
• While the market capitalization remains below ₹1,600 crore, the company needs to have at least 25% of shares available for public ownership.

6. Listing on Recognized Stock Exchanges

• To qualify for trading on exchanges, the company must list its shares on the NSE or BSE exchanges.

7. Red-Herring Prospectus (RHP) & SEBI Approval

• The company must file an RHP (draft prospectus) with SEBI and get approval before launching an IPO.

Example of a Mainboard IPO

Imagine XYZ Ltd., a leading FMCG company, wants to go public. It has:✅ A net tangible asset of ₹5 crore for 3 years✅ An average pre-tax profit of ₹20 crore in the last 5 years✅ A post-IPO capital of ₹50 crore✅ An IPO issue size of ₹300 crore

Since XYZ Ltd. meets all the above Mainboard IPO eligibility criteria, it qualifies for a Mainboard IPO listing on NSE/BSE.

SME IPO Requirements (Eligibility for Small & Medium Enterprises)

Small and medium-sized businesses without the capacity to list through Mainboard IPOs can achieve financing goals by using the BSE SME or NSE Emerge platforms for their IPOs.

Eligibility Criteria for SME IPO

1. Company’s Net Worth & Profitability

• An enterprise needs to possess a minimum net worth value of one crore Rupees to meet eligibility requirements.
• The enterprise needs to show operational profit during two of its last three completed fiscal years.

2. Paid-up Capital Requirement

• The issued capital of the company must remain below ₹25 crore after completing the IPO.

3. Minimum Issue Size & Lot Size

• To set an IPO the minimum requirement for issue size must be 3 crore rupees.
• Mainboard IPO lot sizes remain smaller than those of SMEs because SMEs present higher business risks to investors.

4. Public Shareholding Requirement

• At least 50 individual investors need to choose to participate in the IPO.

5. SEBI & Exchange Approval

• Prior to the IPO launch, the company needs to get both permissions from SEBI and the particular SME exchange.

Example of an SME IPO

Suppose ABC Tech Solutions, a growing IT firm, wants to list via an SME IPO. It has:✅ A net worth of ₹2 crore✅ Profitable in 2 of the last 3 years✅ A paid-up capital of ₹10 crore✅ An IPO issue size of ₹5 crore

Since ABC Tech meets the SME IPO eligibility requirements, it qualifies for listing on BSE SME or NSE Emerge.

Mainboard IPO vs SME IPO: Key Differences

FAQs on IPO Eligibility & Requirements

1. Which criteria enable a loss-making company to file for an IPO?

Yes, but only under the profit exemption rule. A company that fulfills one of many alternative financial requirements (such as revenue-based standards) can still become eligible for an IPO.

2. What is the difference between Mainboard and SME IPOs?

Mainboard IPOs stand different from SME IPOs in terms of their essential characteristics.

The Mainboard serves large established enterprises through its IPO program whereas SME IPOs welcome smaller businesses to list with reduced requirements.

3. Do SME IPOs get listed on NSE and BSE?

SME IPOs obtain listings for trading on NSE Emerge or BSE SME.

The listing location of SME IPOs occurs on the NSE Emerge and BSE SME platforms that serve as specialized SME marketplaces.

4. Can a retail investor apply for an SME IPO?

 A retail investor possesses the ability to apply for an SME IPO.

Retail investors who participate in SME IPOs must acquire substantial quantity allocations since the minimum IPO lots are larger than those of Mainboard IPOs.

5. What is the minimum investment in an SME IPO?

The minimum investment threshold for SME IPOs starts at ₹1 lakh because of their bigger authorization sizes but Mainboard IPOs offer investors more opportunities to buy smaller amounts.