The initial public offering (IPO) refers to the process by which private corporations raise equity capital from public corporations and investors for the first time. IPO is also known as “going public”— by offering the company’s shares and securities.
Many big companies with large market caps raise investment so they can run and scale their business. On the other hand, with the increasing impact of small and medium enterprises (SMEs) in the economy and employment — the IPO listing had to widen its concept and incorporate SME IPO in the stock market.
Both IPOs have different eligibility criteria and listing processes to raise funds. We have outlined everything related to Regular IPO and SME IPO.
Without further ado, let’s understand each of them!
What is an SME IPO?
Small and Medium Enterprises Initial Public Offerings, as it sounds, refer to the procedure of these companies going into the public domain and raising funding in exchange for their equity.
And now, with the involvement of Indian Stock exchanges [BSE and NSE], investing in SMEs has become simpler. Establishment of new trading platforms like BSE SME and NSE SME stages SME business proficiently apart from mainline and regular IPO.
Eligibility criteria for SME initial public offering
The number of eligibility criteria for SMEs is comparatively fewer than that of regular IPOs. So the list of rules for SMEs is as follows-
- 1.5 crores should be the upper limit for the company’s net tangible assets.
- 25 crores should be the upper limit for the company’s post-issue capital.
- The business should have its own site.
- The business must use Demat securities and should form a contract with depositories.
- The business should be registered as per the Companies Act 1956.
- After offering stocks, the company must not change the promoter for at least one year.
SME listing process and steps
Let us have a better look at the SME listing process and understand how it is different from regular IPOs –
- Selection of an Underwriter, an underwriter handles the drafting of all IPO-related documentation.
- Devising the Draft Red Herring Prospectus (DRHP) gives investors better insights into the business.
- The hiring of skilled individuals to support business. It includes registrars, market makers, and bankers.
- Get the DRHP verified by the stock exchange. As in the case of regular IPO, DRHP is validated by SEBI.
- Deciding the selling price of stocks, which the banker underwriters do.
- Announcement of the launch date and start of advertisement campaigns to attract more potential investors.
- Allocation of shares to those who applied, and they can trade on NSE EMERGE and BSE SME. Now your company is in the public domain.
What is the Mainboard listing?
Mainboard listing or regular IPO refers to the process by which private companies sell their shares to the public and get listed on the national stock exchange for the very first time. It’s generally applicable to companies with paid-up capital of at least 10 crores.
Eligibility criteria for Mainboard listing?
The eligibility parameters for the mainboard listing are as follows –
- The company must have post-issued capital of at least ten crores.
- The minimum number of allottees should be 1000.
- The company must have at least three crores of tangible assets for the last three years.
- The minimum market capitalization for the company should be 25 crores.
- The company should have had one crore net worth in the past three years.
- The company should have BSE consent to use its name.
Mainboard listing process and steps
Now let’s see how the mainboard listing process is different from SMEs.
- Choosing an underwriter and forming an underwriting agreement.
- A proposal is being presented by underwriters related to the number of shares and their pricing, employees’ services, best aids to issue, offering prices, and calculated time frame in the trade market.
- A team is formed to handle all IPO fronts composed of lawyers, public accountants, underwriters, and securities and exchange department experts.
- Now the documentation is being done as per the IPO registration requirement.
- After this, the marketing team comes into play. Underwriters and market executives brainstorm to finalize the stock price.
- Formation of a board of directors to supervise financial accounting every quarter.
- Issuing the date for the stock launch, a part of equity is now allotted to the investor and carefully recorded on the balance sheets.
Key differences between SME IPO and Regular IPO
- The fundamental difference is business scale, gauged on paid-up capital parameters. For SMEs, it’s between Rs. 1 crore to Rs. 25 crore; for regular IPOs, it’s above Rs. 10 crores.
- The minimum number of allottees for SME and regular IPOs are 50 and 1000, respectively.
- The DRHP verification is done by SEBI in the case of regular IPO, whereas the stock exchange does it in the case of SMEs.
- The regular application size for SMEs is Rs. 1 lakh, whereas it’s around Rs. 10000 to Rs. 15000 for regular IPOs.
- Quarterly audits are needed to be filed in regular IPOs on the other hand, it’s half-yearly for SMEs.
1. How are shares allotted in SME IPO?
As in the case of SME IPOs, the allotment of shares is done by rules and regulations mentioned in RHP documents. The IPO shares demand is shown in BOA documents, and the basis of allotment of shares is handled by the IPO registrar.
2. Can we sell SME IPO on the listing day?
Yes, investors can sell your SME IPO shares after their listing if you are registered as a retail investor.
3. Is SME – IPO good for investment?
Well, there is always a risk factor involved when it comes to IPOs. Investors should always read companies’ DRHP before any buying decisions. If invested in a good SME IPO, investors can earn good returns.
4. What are the two types of IPOs?
Here are two types of IPOs: the fixed price issue, where shares are sold at fixed rates, and the book building issue, where the prices are decided after the closing bid date.
5. What is primary vs. secondary IPO?
As in the case of the primary market, companies sell their stocks for the very first time in the public domain. On the other hand, the secondary market is actually the stock market or the New York stock exchange, Nasdaq, and other exchanges.
How we can help!
With the technical muddle with both irregular and SME IPO listings, we tried to make it as simple as possible for you — Having a keen eye on related minute details and compliance is necessary to measure your future steps.
That’s why we at FinaAccountants got you covered with everything needed to launch Mainboard and SME IPO, including strategy, evaluation, compliances, forecasting the growth of the business & its valuation.