SEBI Tightens Regulatory Framework for SME IPOs with Profitability and Disclosure Norms

On March 4, 2024, SEBI made important changes to the IPO rules for Small and Medium Enterprises (SMEs).

Now, a company must show a minimum profit (EBITDA) of ₹1 crore in at least two of the last three financial years to be eligible. The Offer-for-Sale (OFS), where existing shareholders sell their shares, is capped at 20% of the total IPO size. No shareholder can sell more than 50% of their shares.

The Draft Red Herring Prospectus (DRHP) must be open for public feedback for 21 days. IPO money cannot be used to repay loans from promoters or related parties, and funds for general corporate purposes are limited to ₹10 crore or 15%, whichever is lower.

SMEs will also need to follow listing and disclosure rules under the LODR Regulations.