The Ultimate SME IPO Compliance Checklist

Embarking on an SME Initial Public Offering (IPO) is an exciting milestone, but it also comes with significant regulatory responsibilities. Compliance is critical to ensuring your IPO process runs smoothly and avoids costly delays or penalties. This ultimate compliance checklist will guide you through the key steps required to meet all regulatory standards and set your business up for a successful public listing.

  1. Understand Regulatory Requirements
  2. Prepare Your Financial Statements
  3. Draft the Red Herring Prospectus (RHP)
  4. Secure Stock Exchange Approvals
  5. Comply with Corporate Governance Norms
  6. Obtain Necessary Approvals and Certifications
  7. Ensure Tax Compliance
  8. Conduct Pre-IPO Due Diligence
  9. Create a Transparent Shareholding Structure
  10. Plan for Post-IPO Compliance

1. Understand Regulatory Requirements

The Securities and Exchange Board of India (SEBI) sets the guidelines for SME IPOs. Key regulatory requirements include:

  • Minimum net tangible assets of INR 3 crore.
  • Positive cash flows from operating activities in two of the last three years.
  • No major defaults in loan repayments or statutory payments.
Tip: Regularly consult SEBI’s guidelines to stay updated on any changes.
2. Prepare Your Financial Statements

Accurate and transparent financial records are the backbone of IPO compliance. Ensure:

  • Financial statements are audited by a SEBI-registered auditor.
  • Compliance with Indian Accounting Standards (Ind AS) or International Financial Reporting Standards (IFRS).
  • Proper documentation of revenue, expenses, and profit margins for the last three years.
Pro Tip: Address discrepancies in financial data before initiating the IPO process.
3. Draft the Red Herring Prospectus (RHP)

The RHP is a crucial document that provides detailed information about your company to investors. Ensure it includes:

  • Business overview and industry analysis.
  • Financial performance and projections.
  • Details of the IPO, including price range and share allotment.
Tip: Engage experienced legal and financial advisors to draft the RHP in compliance with SEBI guidelines.
4. Secure Stock Exchange Approvals

SMEs must choose a platform like NSE Emerge or BSE SME for their IPO listing. Steps include:

  • Submitting the RHP to the chosen exchange for review.
  • Addressing queries or recommendations from the exchange.
  • Receiving final approval for listing.
Pro Tip: Begin stock exchange interactions early to avoid last-minute delays.
5. Comply with Corporate Governance Norms

Post-IPO, businesses must adhere to stricter corporate governance standards. This includes:

  • Establishing a qualified board of directors.
  • Implementing internal audit mechanisms.
  • Ensuring timely financial disclosures and reporting.
Real-Life Insight: Heranba Industries prioritized governance frameworks before its IPO, which enhanced investor confidence and led to a strong subscription rate.
6. Obtain Necessary Approvals and Certifications

Certain approvals and certifications are mandatory for SME IPOs:

  • Registrar of Companies (RoC) approval for prospectus filing.
  • No-objection certificates (NOCs) from lenders or creditors.
  • Certifications for environmental or industry-specific compliance, if applicable.
Tip: Maintain a checklist of required approvals specific to your industry.
7. Ensure Tax Compliance

Tax compliance is critical for IPO readiness. Ensure:

  • Up-to-date Goods and Services Tax (GST) filings.
  • Compliance with income tax regulations.
  • Resolution of any pending tax disputes or assessments.
Pro Tip: Work with a tax advisor to pre-emptively address any potential issues.
8. Conduct Pre-IPO Due Diligence

Due diligence identifies potential risks and ensures compliance across all aspects of the business. Key areas include:

  • Legal and regulatory compliance.
  • Financial health and operational stability.
  • Management and ownership structure.
Tip: Engage third-party consultants to conduct an unbiased due diligence review.
9. Create a Transparent Shareholding Structure

A clear and compliant shareholding structure is essential for gaining investor trust. Ensure:

  • Proper documentation of share allotments.
  • Disclosure of major stakeholders and promoters.
  • Compliance with SEBI’s shareholding norms, such as minimum public shareholding requirements.
Example: Nazara Technologies’ transparent shareholding structure played a significant role in securing investor confidence during its IPO.
10. Plan for Post-IPO Compliance

Compliance doesn’t end with the IPO. Post-listing responsibilities include:

  • Filing quarterly and annual reports with the stock exchange.
  • Ensuring timely disclosures of material events.
  • Conducting annual general meetings (AGMs) in accordance with governance norms.
Pro Tip: Assign a dedicated compliance officer to oversee post-IPO obligations.
Ready to take your SME public? Use this compliance checklist to ensure a seamless IPO process. Join Our SME IPO Masterclass and gain access to expert guidance at every step of the journey.
FAQs

1. What are the key eligibility criteria for SME IPOs?

  • Minimum net tangible assets of INR 3 crore and positive cash flows in two of the last three years are required.
2. What is the purpose of the RHP?
  • The Red Herring Prospectus provides investors with detailed information about the company and the IPO.
3. Why is corporate governance important for IPOs?
  • Strong governance practices build investor trust and ensure regulatory compliance post-listing.
4. How can SMEs ensure tax compliance for IPOs?
  • Work with tax advisors to ensure all filings are up to date and resolve pending disputes.
5. What are post-IPO compliance requirements?
  • Regular financial reporting, timely disclosures, and adherence to governance norms are essential.

Nischal Mittal

Nischal Mittal, a Chartered Accountant and Investment Banker, brings over a decade of expertise in IPO and Fund Raising advisory and Financial consulting.