This news may be concerning for small scale industrialists who plan to raise money from the share market to grow their businesses.
Before approaching the stock market, they will need to carefully review their financial records.
To qualify for an IPO (Initial Public Offering), small and medium enterprises (SMEs) must show a profit of at least Rs 1 crore in two of the last three years.
Stock exchanges will only approve IPOs for SMEs if they meet this requirement.
SEBI, the market regulator, has made the rules stricter, adding more checks to protect the market and investors.
Key Restrictions on SME IPOs
SEBI has introduced new rules to make sure only financially strong companies can launch IPOs. The decision made by SEBI includes the following changes:
Offer for Sale: The maximum amount a shareholder can sell in an SME IPO is 20%.
Shareholder Restrictions: Shareholders cannot sell more than 50% of their total holdings.
Use of Raised Funds: The money raised from the IPO cannot be used to pay off loans taken by promoters, directors, or their related parties.
Additionally, the rules on Unpublished Price Sensitive Information (UPSI) have been made stricter, and SME promoters will need to meet these tough standards.
Meeting Environmental and Social Standards
Apart from financial requirements, SMEs will also have to meet Environmental, Social, and Governance (ESG) standards.
SEBI found that many SMEs use shortcuts (or “Jugaad”) to fulfill legal requirements for IPOs, without following the true spirit of the law.
Now, SMEs will need to meet both legal and ethical standards to qualify for the IPO process.
