Small and Medium Enterprises (SMEs) play a crucial role in driving economic growth, and an SME IPO provides these businesses with a chance to raise capital by going public. However, SME IPOs come with specific limits and regulatory requirements to ensure transparency and credibility. Let’s break down these limits in simple terms.

Key Limits for SME IPOs

1. Post-Issue Paid-Up Capital
   After an SME completes its IPO, the total face value of its paid-up capital cannot exceed ₹25 crores. This ensures that SME IPOs remain focused on smaller enterprises rather than large-scale corporations.
2. Application Size
   Investors must apply for a minimum of ₹1,00,000 worth of shares in an SME IPO. This higher threshold helps attract serious investors and ensures that investments align with the growth-oriented goals of SMEs.
3. Minimum Number of Allottees
   An SME IPO must have at least 50 allottees (unique investors) subscribing to the offering. This criterion helps maintain liquidity in the stock once it is listed.
4. Minimum Tradable Unit (Lot Size)
   The minimum tradable lot size in SME IPOs is above ₹1,00,000, ensuring that trading remains viable for investors committed to the SME space.
5. Profitability Criteria
   To qualify for an SME IPO, the company should demonstrate profitability. It must show an operating profit of at least ₹1 crore in at least two out of the three financial years preceding the IPO application. This helps ensure the company is financially stable and ready for public investment.
6. General Corporate Purposes (GCP) Limit
   Companies can allocate funds raised through an IPO for general corporate purposes, but this amount is capped at 15% of the funds raised, or ₹10 crores, whichever is lower. This ensures that funds are utilized effectively for growth and expansion.
7. Promoter Lock-In Period
   The shares held by promoters are locked in and cannot be sold entirely immediately after the IPO. Promoters must release their holdings in phases over a period of two years, ensuring long-term commitment to the company’s success.

Additional Requirements for SME IPOs

Aside from the above limits, SMEs must meet these essential criteria to be eligible for listing:

1. Legal Structure
   The company should be incorporated under the Companies Act, 1956 (or its successor). If the SME was previously a partnership, proprietorship, or LLP, it must demonstrate a track record of at least three years after conversion.
2. Digital Presence
   The SME must have an operational website, ensuring transparency and accessibility for investors.
3. Dematerialized Securities
   All shares issued must be in Demat form to facilitate seamless trading in the stock market.

Why Are These Limits Necessary?

The regulations and limits for SME IPOs are designed to maintain a balance between encouraging SMEs to access public markets and protecting investors. These limits ensure:

• Fair Market Practices: The criteria ensure only credible and financially stable SMEs are allowed to list.
• Investor Protection: By setting minimum allotments and lock-in periods, these rules protect investors from speculative risks.
• Focused Capital Utilization: Caps on general corporate purposes prevent mismanagement of raised funds.

SME IPOs open doors for small businesses to grow, expand, and build trust in public markets. However, the regulatory framework ensures that only businesses meeting certain criteria can participate. From post-issue capital limits to profitability requirements, these rules aim to foster transparency, accountability, and long-term success for SMEs and their investors.

If your business is considering going public through an SME IPO, it’s essential to thoroughly understand these limits and requirements. Need expert guidance? At Frizcon Capital, we specialize in SME IPO consultations, helping you navigate the complex process with ease.