SME Listing Procedure and Norms in India

Published on Monday, March 9, 2020 by Chittorgarh.com Team | Modified on Thursday, April 20, 2023

Small and Medium-sized Enterprises (SME) has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. They not only play a crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth. SME's are complementary to large industries as ancillary units and this sector contributes enormously to the socio-economic development of the country.

SME Access to Capital Markets

SME Capital Market is a credible and efficient market place to bring about a convergence of sophisticated investors and growing corporate in India. It offers opportunities to informed investors to invest in emerging businesses with exciting growth plans, innovative business models, and commitment towards good governance and investor interest.

SME Capital Market has customized processes and systems which will help prospective issuers in their journey of metamorphosing into listed public companies. The SME platform will provide capital raising opportunities to credible and fast-growing businesses with good governance standards. It will be an ideal platform to raise funds for companies on a growth path, but not large enough to list on the mainboard.

SME Listing Criteria

1. SEBI Requirements

• Post issue paid-up capital shall be maximum Rs 25 cr.
• Minimum application amount/trading lot Rs 1 Lac
• Minimum IPO size of 25% of post-issue capital with a minimum of 50 Investors.
• Mandatory Market Making for 3 years, with a share inventory of 5% of IPO. Total buy obligation: 25% of IPO

2. Financial Criteria of BSE

• Paid-up capital of Rs 10 crores or more
• 2/3rd non-promoter shareholder approval by postal ballot
• Preparation and filing of Information Memorandum
• Clean track record as per SCORES only

3. Financial Criteria of NSE

• Track record of at least 3 years
• Positive cash accruals (EBDT) from operations for at least 2 FY s preceding the application
• Positive Net Worth

SME IPO Benefits

1. Functional Benefits

• Easy access to capital and financing opportunities

  Listing facilitates enormous financing opportunities in terms of raising equity and beneficial treatment in terms of cost at which funds can be raised.

• Reduced cost of borrowing

  Listing often leads to improvement in credit rating, which in turn enables raising of loans at a reduced rate of interest.

• Stakeholders Comfort

  Listing adds to the comfort of stakeholders such as customers/lenders/creditors of the company, which in turn, results in the increased order book, better-negotiated business terms like credit period, margin, favorable contractual covenants, etc.

2. Value Creation

• Unlocking Value

  The value is often locked or not benchmarked for unlisted companies. The companies listed on an exchange are in a position to unlock their fair value. Shares become like a currency that can be used for various purposes-M&A, ESOPs, Collateral, etc. This is one of the significant advantages offered by the capital market.

• Currency Value

  Listed shares, having their value established in the market, act as currency, and can be used as collateral to raise funds. Listed securities act as a Viable M&A Currency.

3. Tax Benefits

• No tax on equity infusion in the company

  As per the Finance Act, 2012 a company is liable to tax on equity infusion, if the equity shares are issued at premium exceeding the fair price. Such tax is not applicable in case the shares are listed.

• No tax on distressed business purchase

  Acquisitions of shares of an unlisted company below net-worth attracts tax on investors such a tax incidence is mitigated if the shares are listed.

• No tax on Buyback of shares

  Tax @ 20% on buyback of shares is not applicable if the shares are listed.

4. Other Benefits

• Visibility / Profile building

  The companies listed on the stock exchange get recognition, as well as is followed by the investors and analysts. Listing of the company provides a platform for recognition and visibility.

• Increased corporate Governance

  Listing help companies strengthen their internal governance systems leading to better internal control and corporate Governance.

SME Listing Procedure

SME IPO can be completed in 60 days subject to receipts of documents and approvals.

Steps of SME Listing Procedure

1. Restructuring of Pre-IPO capital
2. Preferential Allotment
3. Pre IPO Structuring
4. Dematerialization of Shares
5. Re-stated financials by the peer-reviewed auditor
6. Valuation & Issue Pricing
7. Preparation of Draft Prospectus
8. Appointment of Intermediaries
9. Filing of Draft Prospectus with Exchange
10. Exchange approval
11. Filing of Prospectus with ROC
12. ROC Approval
13. IPO Launch
14. Receipt of Applications IPO Management
15. IPO Closes
16. Basis of Allocation
17. SE Approval to Basis of Allocation
18. Refunds / Allotment
19. Listing & Market Making

SME IPO Merchant Banker Operating Procedure

1. Increase in Authorization Capital & Issue of Bonus shares
2. Preparation of Restated Accounts for last 5 years & stub period by Peer Review Auditor
3. Appointment of MD, CS & CFO
4. Appointment of Independent Director
5. Resignation of Directors ( Company to confirm constitution of Board)
6. Passing of IPO Resolution, Adoption of new AOA, Increase in borrowing limits
7. Decision on Promoters/ Promoter Group and Group Entities
8. Decision of Object of Issue (If Working Capital, CMA Required)
9. Obtaining NOC of Lenders for IPO
10. Gratuity Valuation
11. Constitution of Statutory Committees (After the appointment of Independent Directors)
12. Application for ISIN and Demat of Shares
13. Updating of Company Website