SMEs want to go public to raise funds, you must have three years of business history. SME owners planning to raise funds for expansion via IPO must have been operational for at least 3 years. The eligibility criteria of BSE SME and NSE Emerge stipulate that SMEs must have a three-year operational history to go public.
Below is how you can fulfill the 3-year track record criterion for an SME IPO;
1. Applicant Company must be in Existence For 3 years or more
The issuer company preparing for the IPO must have been operating for at least 3 years. This is because the SME eligibility criteria of the BSE and the NSE exchange require companies to submit audited financial statements for three full financial years.
2. Sole proprietorship/Partnership firms converted into company
If your corporate structure is a sole proprietorship or partnership or LLP, you must first convert to a public limited company. However, the question now arises as to whether the companies must be in operation for 3 years after the conversion.No, for sole proprietorships/registered partnerships/LLPs that have been converted into public limited companies, the track record must be 3 years together with the previous business form as a sole proprietorship/partnership/LLP.This means that 3 years of operational existence before the conversion count. It is not mandatory to have been active as a company for 3 years.
How sole proprietorship and/or partnership firms can issue SME IPO
3. Promoters must have 3 years of experience
If the applicant company seeking listing on NSE SME is less than three years old, the promoters or the promoting company, which can be incorporated in and outside India, must have a history of three years.
Additional criteria for listing on NSE Emerge;
- To be listed on the SME Exchange, the promoters of the company (one or more persons) must have at least 3 years of experience in the same field of business.
- The promoters must individually or jointly own at least 20% of the post-issue share capital.
Note: Promoters are entities or individuals who have founded the company and hold a significant stake.
4. Must have Operating Profits for at least 2 years
Being in existence for 3 years is not enough, as you must prove that your company is in good financial health.
The criteria of the BSE SME and NSE SME stock exchanges require companies to have been profitable for at least two years in the last three financial years prior to the date of the IPO application.
SMEs must have a distributable operating profit (EBITDA), i.e. earnings before interest, tax, depreciation, and amortization. To be listed on the BSE SME, companies must also have made a profit in the last financial year.
5. Positive Net Worth
The net worth of the SME must be positive to list on NSE Emerge, while at BSE SME, the minimum net worth required is Rs 1 crore for 2 preceding full financial years.
Net worth is the total assets of a company minus all liabilities. To qualify for an SME IPO, the net worth is calculated as per SEBI (ICDR) regulations.
According to the BSE and NSE criteria for SMEs, companies must have a positive net worth, which means that the company must have more assets than total liabilities.
6. Project Funded by NABARD/SIDBI/Banks or Financial Institutions
If an SME does not fulfil the requirements of 3 years of existence, but the project for which it is going public is funded by NABARD, SIDBI, banks, or other financial institutions, will be eligible for a BSE SME IPO.
Yes, 3 years of operational existence is not a mandatory criterion for such companies. And, such companies have to submit audited financial results for at least one full financial year.
