Question 1

What are SME listed companies?

Accepted Answer

SME listed companies are Small and Medium Enterprises that have successfully raised capital from the public through an SME IPO and are now trading on either the NSE or BSE stock exchanges.

While their shares trade similarly to other listed companies, there are a few key differences:
• SME shares are traded in 'lots.' This means you must buy a minimum number of shares (a lot) as specified by the stock exchange, unlike mainboard shares where you can often buy a single share.

• SMEs are typically listed on only one exchange, either the BSE or the NSE, not both simultaneously.

These dedicated SME IPO platforms are designed to help new, early-stage, and high-growth small companies raise essential capital. This funding supports their development and growth, often with the goal of eventually transitioning to the main BSE and NSE exchanges.

Important points to remember:

• Many listed SMEs aim to migrate to the mainboard exchanges after approximately two years.

• Most stockbrokers provide facilities for trading in listed SME companies.

• Generally, the trading volume for listed SME companies can be lower compared to mainboard companies.

Question 2

Can an SME become a listed company?

Accepted Answer

Yes, Small and Medium Enterprises (SMEs) absolutely can become listed companies by offering their shares on the BSE or NSE. The BSE SME and NSE Emerge platforms are specifically designed to help these companies raise capital from the public and get listed on the stock exchanges.

To apply for an IPO through the BSE SME and NSE Emerge platforms, an SME company typically needs to meet these prerequisites:
• Its post-issue paid-up capital should not exceed Rs 25 crores.

• It should have an operational track record of at least three years.

• It must have a positive net worth in at least two out of the last three financial years.

Question 3

Can a new business or startup go public with an SME IPO?

Accepted Answer

Yes, a new company or startup can indeed go public using an SME IPO. Both the BSE (through BSE Startups) and the NSE (through NSE EMERGE-ITP) offer platforms specifically for startups. These platforms can facilitate going public, sometimes even without a traditional IPO.

However, it's worth noting that startup listings on the Indian stock market haven't seen widespread success. As of April 2023, only a handful of the approximately 75 companies listed on startup platforms were actively trading.

The eligibility criteria for startups to go public differ from those for established small or medium enterprises. For instance, a startup with a turnover of Rs 10 crore can apply for an IPO on the BSE SME and NSE SME platforms. Even if a company hasn't operated for three years, it can still apply for an IPO if it has received funding from private equity, angel investors, or a public bank/financial institution.

Here are some key criteria for a startup or new company looking to list on the BSE SME and NSE SME platforms:
• **Post-Issue Paid-Up Capital:** Should not exceed Rs 25 crores.

• **Track Record:** If the company has a three-year track record, its annual revenue should be Rs 10 crores, with a 20% annual growth rate over the previous year.

• **Positive Net Worth:** The issuer must have a positive net worth and have achieved operating profit (Earnings Before Interest, Depreciation, Amortization, and Taxes) for at least the last two or three fiscal years. If the company has been operating for less than three years, it must have received financing from a public bank or financial institution.

• **Other Mandatory Requirements:** The issuer should not have been referred to the Industrial and Financial Reconstruction Board. There should be no stock market disciplinary actions by the NCLT, nor any court petitions for dissolution.

• **Disclosure:** Group companies must not have faced any stock market disciplinary actions in the past year, nor should they be delinquent in interest and principal payments. The company must also disclose any litigation status and criminal proceedings against any of its directors.

Question 4

Can a small company go public?

Accepted Answer

Yes, a small company can absolutely go public! This is done by offering its shares to the public through an Initial Public Offering (IPO) and getting listed on specialized SME (Small and Medium Enterprises) platforms of the BSE and NSE stock exchanges. These platforms are designed to make the listing process more accessible for smaller companies.

To achieve this, a small company must meet specific eligibility criteria, which typically include requirements for minimum net worth, profitability, a proven track record, and adherence to compliance standards set by regulatory bodies.

Question 5

Can a small business be publicly traded?

Accepted Answer

Yes, a small business can indeed become publicly traded. This process typically involves offering shares to the public through an Initial Public Offering (IPO) and then listing them on a stock exchange. In India, there are special platforms like the BSE SME and NSE Emerge specifically designed to facilitate this for smaller companies.

To become publicly traded, a small business needs to fulfill specific eligibility criteria. These often include maintaining a minimum net worth, demonstrating a solid operational track record, and complying with all regulatory and disclosure requirements.

Question 6

How can a company list its shares on a stock exchange?

Accepted Answer

To list a company on a stock exchange, you generally need to follow these key steps:
• Ensure your company meets all eligibility criteria set by both the stock exchange and regulatory authorities.

• Appoint a merchant banker and other necessary advisors to guide you.

• Prepare and formally file a prospectus document.

• Obtain all required approvals from regulatory bodies and the chosen stock exchange.

• Launch the Initial Public Offering (IPO) and invite applications from investors.

• Allot shares to successful applicants and then list the company on the stock exchange.

Question 7

Can a partnership firm issue an IPO?

Accepted Answer

No, a partnership firm cannot directly issue an Initial Public Offering (IPO).

To issue an IPO and offer shares to the public, a business must be structured as a public limited company.

Therefore, a partnership firm can only issue an IPO if it first takes the following steps:
• Convert its legal structure into a public limited company.

• Fulfill all eligibility requirements stipulated by the regulator and the stock exchange.

• Only then can it proceed with an IPO to raise funds and get listed on the stock exchange.

Criteria	Requirement
Incorporation	Must be under the Companies Act, 1956
Post-Issue Paid-Up Capital	Should not exceed ₹25 crores
Net Worth	Minimum ₹1 crore for the last two full financial years
Net Tangible Assets	Minimum ₹3 crores in the last financial year
Track Record	Minimum 3 years of operations or project supported by NABARD, SIDBI, banks
Operating Profit (EBITDA)	Positive profit in at least 2 out of the last 3 years
Leverage Ratio	Must not exceed 3:1
Compliance & Defaults	No bans or disqualifications, no defaults, no winding-up petitions
Promoter Shareholding	100% must be in dematerialized form
Company Website	Must have a functional website
Board Composition	Must comply with the Companies Act, 2013
Change of Name (If Applicable)	≥50% revenue from new business if name changed within a year

Sector	Eligibility Requirements
Broking Companies	Net worth and PBT of ≥ ₹5 crores in 2 of last 3 years or net worth ≥ ₹25 crores in 3 of last 5 years
Microfinance Companies	Asset Under Management ≥ ₹100 crores, client base ≥ 10,000, no public deposits

Parameter	Listing Requirement
Incorporation	Must be incorporated under the Companies Act, 1956 or 2013
Post-Issue Paid-Up Capital	Must not exceed ₹25 crore
Track Record	At least 3 years of company or promoter history
Financial Criteria	Operating profit (EBITDA) ≥ ₹1 crore in any 2 of the last 3 financial years
Offer for Sale (OFS)	OFS must not exceed 20% of the total issue size
Other Conditions	No major regulatory actions, no winding-up petitions, no recent rejections
Disclosures	Must disclose regulatory actions, defaults, litigation, and investigations
Merchant Banker Clause	Banker's offer document shouldn't have been returned by NSE in the last 6 months

SME IPO Eligibility Criteria

Understanding General Eligibility for SME IPOs in India

1. Company Structure

2. Net Tangible Assets

3. Net Worth

4. Track Record of Profitability

5. Operating History

6. Post-Issue Paid-up Capital

7. No Referrals to BIFR/Winding Up Petitions

8. No Default in Loan Repayments

9. Disclosures and Compliances

10. Compulsory Market Making

11. Offer for Sale (OFS) Component

12. Usage of IPO Proceeds

BSE SME Exchange Guidelines

BSE SME Listing Criteria

Additional Criteria for Specific Sectors

Important Notes

NSE Emerge Requirements

NSE SME Listing Criteria

NSE SME IPO Checklist

NSE SME IPO Rejection & Cooling Off

IPO Issuance for Different Business Structures

Legal Status and Conversion Process

1. Private Limited to Public Limited Company

2. Partnership Firm to Public Limited Company

3. Proprietorship to Public Limited Company

Governance, Compliance, and Transparency Standards

Issue Size, Investor Base, and Underwriting

Key Takeaways

Frequently Asked Questions