What are IPO Requirements in India?

The Securities and Exchange Board of India (SEBI) is the market regulator for India's financial markets, and it is responsible for ensuring that the private companies going public are listed companies

Below are the details on the requirements for conducting an IPO in India, the regulatory process involved in getting a company listed, and how SEBI reviews and assesses Draft Red Herring Prospectuses (DRHPs). The following information is presented in a news format.

Basic Eligibility Criteria for Companies To Go Public

To go public in India, a company must fulfil the following requirements:

• The company must have been in existence for three years.

• The company must show that it has generated profits in two out of the last three years.

• A minimum net worth of ₹3 crore is necessary.

• At least 20% of the company's shares must be publicly traded.

• A SEBI-registered merchant banker must be appointed to audit the company's financial statements to ensure compliance with regulatory requirements.

These criteria aim to ensure that only financially stable and accountable companies access public funds.

What Are The Conditions For a Public Offering?

According to Indian law, companies looking to raise funds via an Initial Public Offering (IPO) are subject to other rules and conditions. To file an IPO, companies must have:

At least seven shareholders.

• Minimum paid-up capital of ₹5 lakh.

• Evidence of profitability for the most recent three financial years.

• A requirement to register with SEBI before applying for an IPO.

Different markets have different requirements. For example, the minimum required paid-up capital for companies planning to offer equity to the public in India is ₹50 lakh, while their net asset value must be equal to or greater than ₹10 crore.

To improve a company's chances of being able to successfully list its shares, it is recommended that companies keep their financials up-to-date, maintain strong cash flows and have proven management.

SEBI’s Regulatory Role in IPOs

SEBI is responsible for overseeing all stages of the Initial Public Offering (IPO) process. In addition to establishing guidelines that promote transparency and fairness to investors, SEBI's regulations also include:

• The minimum amount of money that must be raised by a company to qualify as a public company.

• The requirement for companies to appoint SEBI-authorised auditors and merchant bankers.

• The obligation to make certain mandatory disclosures in the IPO prospectus.

Through the issuance of these guidelines, SEBI protects investor interest while promoting the development of efficient capital markets.

SEBI-Mandated Eligibility Criteria for IPO Listing

To qualify for a listing and trading on stock exchanges in India, it is necessary to meet the SEBI's criteria, which include:

• A minimum net worth of ₹3 crore.

• At least three years of operations.

• Profitable in at least two of the last three years.

• A minimum of 25% public shareholdings.

• Three years of clean and audited financial statements.

• A minimum paid-up capital of ₹1 crore.

• Positive net profit for each of the last three financial years.

• No history of defaulting on bank loans or overdrafts.

Additional Requirements by NSE and SEBI

Companies must meet additional requirements before filing for an IPO, including:

• No ongoing lawsuits which may affect the company's ability to run business as usual.

• A minimum of 25% of its shares must be offered to public investors

• The company must hire a merchant banking firm to assist with the allocation and pricing of its shares and to support post-IPO relationships with shareholders.

Merchant banking firms assist companies in meeting the applicable rules, establishing fair value and providing guidance on communicating effectively with potential investors about the offering.

Step-by-Step IPO Application Process

The IPO process in India typically takes six to eight months and the steps include:

Appointment of Merchant Bankers: Companies may appoint one or more lead managers or merchant bankers to manage the IPO process.