Lessons
Each lesson takes about ten minutes to read and ends with four things to do that week. Work through them in order; the later lessons depend on the earlier clean-up.
Lesson 1. Is an SME IPO right for you?
An SME IPO raises equity from the public through BSE SME or NSE Emerge for a company whose post-issue paid-up capital (at face value) is up to ₹25 crore. Before any eligibility test, the founders should be clear on three things: what it costs, what it gives away, and what it commits the company to every year after.
Cost
Practitioners quote total issue costs of roughly 8% to 14% of the issue size: lead manager, underwriting, market maker, legal counsel, registrar, auditors' restatement and certificates, exchange and depository fees, advertising and printing. That is a market estimate, not a rule, and the smaller the issue the higher the percentage. Add the internal cost: six to twelve months of the finance team's time on restatement and diligence, and a permanent increase in compliance staff and fees.
Dilution and control
Promoters must hold at least 20% of the post-issue capital as minimum promoters' contribution, locked in for three years. Most SME issues dilute 25% to 35% of the company. Public shareholders vote on special resolutions, related party transactions and remuneration, and their questions arrive through SCORES.
Obligations
From listing day, the company follows SEBI LODR (with the SME exemptions), the insider trading code, the takeover code and the listed-company provisions of the Companies Act: one-third independent directors, a woman director, KMP, audit and nomination committees, internal and secretarial audit. Half-yearly results, shareholding patterns and event disclosures run on fixed clocks with daily fines for delay.
When it makes sense
It suits a company with three or more years of clean, growing operations, a use for capital that bank debt cannot fund cheaply, and promoters willing to run the company as if outsiders are watching, because they will be. It does not suit a company trying to fix a cash crisis or exit promoters quickly: OFS is capped and promoter shares are locked in.
Do this week
- Write down the amount you need, what it will fund and why debt will not do.
- Get two indicative fee quotes from SME lead managers to size the cost.
- List who will own compliance after listing, by name.
- Read the SME listing compliance overview.
Lesson 2. Eligibility tests: BSE SME vs NSE Emerge
SEBI's ICDR Chapter IX sets a floor for every SME issue; each exchange adds its own tests. You must pass SEBI's and the exchange's.
SEBI floor (after March 2025)
- Post-issue paid-up capital up to ₹25 crore.
- Operating profit (EBITDA) of at least ₹1 crore from operations in 2 of the 3 preceding years.
- No debarred promoters or directors; no wilful defaulter or fraudulent borrower.
BSE SME
- Net worth at least ₹1 crore in each of the 2 preceding full years; net tangible assets at least ₹3 crore in the last full year.
- Three-year track record, which can include time as a proprietorship, partnership or LLP, with at least one full audited year as a company.
- Debt to equity no more than 3:1; 100% promoter shares in demat; no change in promoters in the last year.
NSE Emerge
- Operating profit (EBIT) of at least ₹1 crore in 2 of 3 years; positive net worth.
- Free cash flow to equity (FCFE) positive in 2 of 3 years. From 20 April 2026 the formula is CFO less capex plus equity raised plus net borrowings less interest × (1 − tax rate), on restated consolidated figures.
- Track record of 3 years for the company or its promoters; promoters at least 20% after the issue.
The tests run on restated numbers, not the audited accounts as first filed. A company that passes on audited figures can fail after restatement adjustments, which is why lesson 3 matters. Full comparison: eligibility table.
Do this week
- Run your last three years through the SME IPO eligibility checker.
- Compute NSE FCFE for each year from your cash flow statements.
- List any change in promoters, any IBC or winding-up matter, and any lender default in the last three years.
- Decide which exchange fits, or keep both open until restatement.
Lesson 3. Cleaning the books and restatement
The offer document carries restated financial statements for the ICDR periods (normally three years, plus a stub period if the latest audited year is more than six months old at filing). They are examined by a peer-reviewed auditor. Restatement means applying today's accounting policies consistently across all periods and correcting errors in the year they belong to.
What usually changes on restatement
- Gratuity and leave encashment provided on actuarial valuation for every year, not on a cash basis.
- Revenue cut-off corrected: invoices in the wrong year, unbilled revenue, contract revenue on stage of completion.
- Prior-period items moved to the years they relate to.
- Deferred tax recomputed.
- Depreciation corrected for asset additions capitalised late or at the wrong rate; CWIP aged.
- MSME interest and disallowances recognised.
- Audit qualifications and CARO remarks addressed and their effect quantified.
Why it matters
Every eligibility test, every ratio in the offer document and the valuation all run on restated numbers. Large restatement adjustments also invite questions from the exchange and investors about the reliability of the original accounts.
Getting ahead of it
Close the current year cleanly: proper cut-off, actuarial valuations, a fixed asset register reconciled to the books, balance confirmations, and a related party register. If the current statutory auditor is not peer-reviewed, plan the transition. A year of clean books before the restatement period ends is worth more than any amount of adjustment later.
Do this week
- Ask the auditor for a list of all qualifications and CARO remarks for three years.
- Get an actuarial valuation of gratuity and leave for each restated year.
- Reconcile the fixed asset register to the books and age CWIP.
- Use the period-close checklist for this year's close.
Lesson 4. Tax, GST, FEMA, TDS and MSME clean-up
The offer document lists outstanding tax proceedings with amounts, and the lead manager's diligence asks for every notice, demand and default. Each open item becomes a disclosure or a risk factor. Cleaning these up early is cheaper than explaining them later.
GST
Reconcile books, GSTR-1, GSTR-3B, GSTR-2B and GSTR-9 for every GSTIN for the restated years. Answer open scrutiny notices (ASMT-10 guide), pay accepted amounts with interest, and track every show cause notice with its time limit.
Income tax and TDS
Clear TRACES defaults and file correction statements. Check that TDS was deducted under the right section and deposited on time; interest and disallowances on TDS defaults flow into restated profit. Track pending assessments and appeals.
FEMA
Close outstanding EDPMS and IDPMS entries with your AD banks (guide). If there is foreign investment in the company, check that FC-GPR, FC-TRS and FLA filings are complete; late filings need a late submission fee or compounding before the DRHP.
MSME
Pay micro and small suppliers within 45 days, file MSME-1, and disclose MSME dues correctly in the accounts. Late payments are disallowed under s.37(2)(g) [43B(h)] of the Income-tax Act 2025 and appear in the offer document. See MSME payments.
Other statutes
PF, ESI, professional tax, labour licences, pollution and factory approvals, property titles. Whatever is missing becomes a risk factor or a condition from the exchange.
Do this week
Lesson 5. Corporate structure, board and KMP, conversion to public
Only a public company can make an IPO. Most SME IPO candidates are private companies, so conversion is the first corporate step, and with it come rules that the company has never had to follow.
Conversion
- Board approves conversion and altered MoA and AoA, and calls an EGM.
- Special resolution under s.14; MGT-14 within 30 days.
- INC-27 within 15 days of the resolution; fresh certificate of incorporation.
- At least 3 directors and 7 members.
What switches on
s.180 borrowing and asset-sale limits now need a special resolution; private-company exemptions under s.185 and s.188 fall away; all securities must be in demat (Rule 9A) with PAS-6 half-yearly.
Board and KMP for listing
- One-third independent directors, registered in the IICA databank.
- A woman director.
- MD or whole-time director, CFO and a whole-time company secretary who will be the compliance officer (not more than one level below the board).
- Audit committee, nomination and remuneration committee, stakeholders relationship committee, vigil mechanism.
Group structure
Group companies, subsidiaries and related party arrangements are disclosed in detail. Simplify where you can before filing: dormant companies struck off, intercompany balances settled, and related party transactions documented at arm's length with approvals.
Detail: Companies Act for listed and IPO-bound companies.
Do this week
- Check current board composition against listed-company requirements.
- Shortlist independent directors and confirm their IICA registration.
- Reconcile the cap table to PAS-3, SH-7 and MGT-7 history; get ISINs.
- Use the Companies Act applicability tool to see what applies today.
Lesson 6. The DRHP and diligence: what bankers ask for
The draft red herring prospectus (DRHP) is filed with the exchange, not SEBI, for SME issues, and is open for 21 days of public comments. The lead manager signs a due diligence certificate, so their team will test every statement in it against documents.
What the diligence list covers
- Corporate records: incorporation documents, every allotment and transfer, statutory registers, board and shareholder minutes, ROC filings for all years.
- Financials: audited and restated statements, auditor's examination report, statement of tax benefits, capitalisation statement, financial indebtedness, key performance indicators with auditor certification.
- Business: material contracts, top customers and suppliers, order book, capacity and utilisation, licences and approvals.
- Litigation: all proceedings by and against the company, promoters, directors and group companies, with materiality thresholds.
- Promoters: KYC, education and experience proof, other ventures, any regulatory action.
- Objects of the issue: quotations for capex, working capital assessment, and evidence that proceeds will not repay promoter or related-party loans.
- Creditors: outstanding dues to MSMEs and material creditors.
How to make it go faster
Build a data room before the lead manager asks: one folder per diligence head, indexed, with certified copies. Every number in the DRHP needs a source document or a certificate. Gaps found late push out filing dates; gaps found by the exchange push out approval.
Do this week
- Set up a data room with the diligence heads above.
- Collect board and shareholder minutes for all years and check they are signed.
- Prepare a litigation register for the company, promoters, directors and group companies.
- Get capex quotations for the objects of the issue.
Lesson 7. Issue structure and pricing
SEBI tightened SME issue rules in March 2025. The structure you can offer is narrower than many founders expect.
| Rule | Position |
|---|---|
| Offer for sale | At most 20% of the issue; each selling shareholder at most 50% of their pre-issue holding |
| General corporate purposes | Lower of 15% of the issue or ₹10 crore |
| Loan repayment | Proceeds cannot repay loans from promoters, the promoter group or related parties |
| Minimum application | 2 lots, worth more than ₹2 lakh |
| Minimum allottees | 200 |
| Underwriting | 100% of the issue; lead manager at least 15% on its own account |
| Market making | Compulsory for 3 years from listing |
| Monitoring agency | Mandatory above ₹50 crore |
Lock-in
Minimum promoters' contribution of 20% of post-issue capital is locked in for 3 years. Promoter holding above that is released in two stages: 50% after one year and the rest after two years. Other pre-issue shareholders are locked in under the ICDR; confirm the period for your issue with the lead manager.
Pricing
SME issues can be fixed price or book built. The price has to be justified in the "basis for issue price" section with EPS, P/E against listed peers, return on net worth and net asset value, and KPIs certified by the auditor. Pre-IPO placements must be reported to the exchange within 24 hours, and their price becomes a reference point. An aggressive price that the market does not support shows up as weak listing and a burden on the market maker.
Full rules: issue structure and lock-in.
Do this week
- Decide the split between fresh issue and OFS within the caps.
- Draft the objects of the issue with amounts, keeping GCP within limits.
- Identify three to five listed peers and their valuation ratios.
- List pre-IPO shareholders and their lock-in.
Lesson 8. Life after listing
Listing is the start of a fixed compliance calendar. The SME exemption under LODR Reg 15(2) removes the board-composition and governance-report regulations of LODR, but not the Companies Act versions, and not the disclosure regime.
The calendar
- Half-yearly results under Reg 33 within 45 days; annual audited within 60 days.
- Shareholding pattern under Reg 31 within 21 days of each half-year.
- Quarterly: investor grievances in Integrated Filing (Governance) within 30 days; Reg 76 reconciliation of share capital audit within 30 days.
- Statement of deviation in use of proceeds with results, until proceeds are used.
- Annual: listing fee by 30 April, SDD compliance certificate within 60 days of 31 March, annual report under Reg 34.
Event disclosures (Reg 30)
Material events within 12 hours if they arise internally, 24 hours if externally, 30 minutes for board outcomes (3 hours after market hours). Materiality is the lower of 2% of turnover, 2% of net worth or 5% of three-year average absolute PAT.
Insider trading
Code of fair disclosure, code of conduct, designated persons, structured digital database, trading window closed from period end to 48 hours after results, and disclosure of trades above ₹10 lakh a quarter.
Fines
Exchanges levy fixed daily fines (for example, ₹5,000 a day for late Reg 33 results, plus GST). Unpaid fines lead to freezing of promoter holdings, and repeated non-compliance to suspension. See fines and escalation.
Detail: SEBI for SME-listed companies and the compliance chart.
Do this week
- Build a post-listing compliance calendar with owners (SME LODR toolkit).
- Draft the Reg 30 materiality policy and the PIT codes.
- Set up the structured digital database before listing.
- Agree the board meeting and results calendar for the first year.
Rules are summarised from SEBI ICDR Chapter IX and LODR as amended to 6 October 2026, and the BSE SME and NSE Emerge eligibility criteria. SEBI announced a review of SME rules in August 2026 proposed; nothing has changed yet.