SME IPO Eligibility Criteria, SEBI Guidelines

To be incorporated as a Public Company under the Companies Act, 1956 or 2013, for the listing or to convert into a public company. Currently, there are only 2 SME Exchanges in India i.e. BSE SME Platform and NSE EMERGE Platform which have their own Listing Criteria for SMEs apart from the SEBI Guidelines stipulated to be disclosed for Listing. Here are the listing norms, requirements, and issue criteria to get listed on the BSE SME or NSE EMERGE Platform. The ecosystem of SME Listing on both exchanges has some similarities and differences.

Read this article on SME IPO eligibility criteria to understand the listing requirements set by BSE SME and NSE Emerge for paid-up capital, net worth, profitability, and more.

New SEBI Guidelines for SME IPOs

SEBI has laid down new requirements to strengthen investor protection and promote sustainable market participation. The key updates include:

• Minimum Public Shareholding: Companies must ensure at least 25% public shareholding post-listing.
• Maximum Post-Issue Capital: The total post-IPO paid-up capital cannot exceed INR 25 crores.
• Higher Minimum Application Size: The minimum lot size has been doubled from INR 1,00,000 to INR 2,00,000 to ensure higher-quality investor participation.
• Tighter Offer for Sale (OFS) Rules: Promoters and existing shareholders cannot sell more than 20% of the total issue size, and no individual shareholder can divest more than 50% of their holdings during the IPO.
• Promoter Lock-In Period: Any excess holdings beyond the Minimum Promoter Contribution (MPC) will be locked in two phases:
  • 50% of the excess holdings for one year
  • The remaining 50% for two years
• Alignment with Main Board for Non-Institutional Investors (NIIs): Investor allocation for NIIs will now follow the structure of main board IPOs.
• Tighter Restrictions on Fund Usage: IPO proceeds cannot be used to repay loans taken from promoters, their group entities, or related parties.
• Mandatory Public Feedback on DRHP: Companies must allow a 21-day public comment period on their Draft Red Herring Prospectus (DRHP), with mandatory newspaper notifications featuring a QR code for easy access.
• Additional Fundraising without Migration: SMEs listed on BSE SME or NSE EMERGE can raise further capital without moving to the Main Board if they comply with SEBI (LODR) Regulations.
• One-Year Stability Rule for Converted Entities: Businesses converted from LLPs or partnerships must operate as a company for at least a year before they can apply for an IPO.
• Extended Related Party Transaction (RPT) Norms: SME-listed firms must now comply with the same RPT rules as main board companies.
• Ownership Stability Requirement: Companies that undergo a major promoter or ownership change must wait at least one year before filing for an IPO.

Revised BSE SME Eligibility and NSE EMERGE Eligibility Listing Criteria

Basic Eligibility for SMEs

• Must be incorporated under the Companies Act 1956/2013.
• The business must have a minimum three-year operational track record.
• Converted entities (LLPs or partnerships) must operate for a full year post-conversion before applying.

Financial and Profitability Benchmarks

• Net Worth: A minimum INR 1 crore in the preceding two financial years.
• Net Tangible Assets: Must be at least INR 3 crores.
• Profitability Requirement: SMEs must have an operating profit (EBITDA) of INR 1 crore in at least 2 of the last 3 years.
• Leverage Ratio: Should not exceed 3:1, except for finance companies which may have relaxations.

Additional Criteria for Specialized Sectors

• Stock & Broking Companies: Must have a minimum net worth of INR 5 crores in any 2 of the last 3 financial years or INR 25 crores in any 3 of the last 5 financial years.
• Microfinance Companies:
  • Minimum Assets Under Management (AUM): INR 100 crores.
  • Minimum client base: 10,000.
  • No acceptance of public deposits.

Corporate Governance & Compliance

• Companies must maintain a functional website.
• Trading must be in dematerialized form, with agreements with NSDL and CDSL.
• Companies must have no active winding-up petitions or bankruptcy proceedings.
• No major regulatory or disciplinary action by SEBI, stock exchanges, or financial regulators in the last three years.

What These Changes Mean for SMEs

The 2025 updates to SME IPO eligibility norms aim to attract more institutional participation while protecting retail investors. The increase in minimum lot size to INR 2,00,000 is expected to deter speculative small-ticket investors while ensuring committed, quality investment in SME stocks.

Additionally, the restrictions on fund usage and related-party transactions are intended to improve transparency and prevent misuse of IPO funds. These measures, combined with the promoter lock-in requirements, promote stability in SME-listed firms, encouraging long-term value creation.

With these regulatory adjustments, SEBI aims to provide a more structured and investor-friendly environment for SMEs looking to list on BSE SME and NSE EMERGE. As India’s startup and SME ecosystem continues to evolve, these measures ensure greater market stability and improved transparency for issuers and investors alike.

SME IPO Eligibility Criteria FAQs