What It Takes to Go Public: IPO Conditions Explained

For many business owners, going public is the ultimate sign of success. It’s the moment you ring the bell, see your company’s name scroll across the ticker, and feel like you’ve finally made it. But while the dream is appealing, the reality behind reaching that stage is often misunderstood—and far more nuanced.

Before any company can list on the stock exchange in India—whether it’s a tech startup or a family-owned enterprise—there are specific conditions it must meet. These aren’t just paperwork requirements; they reflect the company’s financial health, governance structure, promoter credibility, and long-term sustainability.

Yet, many founders find themselves asking the same questions:

• *What are the real conditions for an IPO?

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• *Do I need to be profitable?

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• *Can an SME or startup go public without a big investor backing?

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• *What will SEBI and the stock exchanges actually look at?

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This blog breaks it all down.

At MUDS Management, we’ve helped dozens of businesses walk the path from private to public—and the journey always starts the same way: with clarity. The more you understand the IPO conditions, the more empowered you’ll be to prepare, improve, and eventually qualify.

This isn’t about passing a test—it’s about building a business that can hold its own in the public market. So whether you’re six months away from filing or just curious if your company could ever qualify, this guide will walk you through everything you need to know.

2. Why Companies Choose to Go Public

Before we dive into the conditions, it’s important to understand why companies even choose the IPO route in the first place. Because going public is more than just a funding event—it’s a strategic shift.

1. Access to Growth Capital

One of the most obvious advantages of an IPO is the ability to raise significant capital—without increasing debt or giving excessive control to private investors. The money raised can be used to:

• Expand operations

• Develop new products

• Enter new markets

• Pay off existing liabilities

For many companies, especially those reaching a scale plateau, an IPO is the fuel needed for the next stage of growth.

2. Increased Credibility & Visibility

A listed company carries greater credibility in the eyes of customers, investors, lenders, and vendors. It signals:

• Strong governance

• Transparent operations

• Market trust

This often translates into better loan terms, easier vendor negotiations, and stronger employee confidence.

3. Liquidity for Existing Shareholders

Founders, early-stage investors, and ESOP holders can eventually exit or monetize their holdings through the public market. For investors, this adds an important layer of reassurance.

4. Valuation & Benchmarking

Listing allows your company to be valued by the market. This not only increases transparency but also serves as a benchmark for future fundraising, partnerships, and even acquisitions.

5. Strategic Benefits

A public company often finds it easier to:

• Attract top-tier talent

• Partner with global firms

• Explore M&A opportunities

Going public, when done right, creates momentum across multiple fronts.

But none of this is possible unless your company meets the foundational conditions for IPO. So let’s move from the why to the what.

3. Eligibility Criteria: Key Conditions for IPO in India

Not every business is IPO-ready. In India, the Securities and Exchange Board of India (SEBI), along with stock exchanges like BSE and NSE, have laid down clear eligibility criteria. These conditions vary depending on whether you’re aiming for a mainboard IPO or a SME IPO, but the underlying principles remain the same.

Let’s break down the core conditions under four key categories:

a. Financial Conditions

This is where most companies start assessing their readiness—and rightly so.

For Mainboard IPOs:

• Profitability Track Record:
  Your company must have a minimum of ₹15 crore in average pre-tax profits during the last 3 out of 5 financial years.

• Net Worth:
  The net worth (total assets minus liabilities) should be at least ₹1 crore in each of those 3 years.

• Net Tangible Assets:
  Minimum of ₹3 crore in tangible assets in the latest audited results.

For SME IPOs:

• Lower Entry Barrier:
  Companies can apply with a post-issue paid-up capital between ₹1 crore and ₹25 crores.

• Profitability is Preferred, Not Mandatory:
  If a company is not profitable, it must bring in a market maker and offer at least 50% of the issue to qualified institutional buyers (QIBs).

• Positive Net Worth:
  Most SME platforms still prefer a positive net worth for at least the previous financial year.

Other Key Financial Conditions:

• Audited Financial Statements:
  Your last 3 years’ accounts must be audited by a peer-reviewed chartered accountant.

• Restated Accounts:
  Financials may need to be restated as per SEBI's disclosure requirements.

It’s not just about numbers—it’s about consistency. If your financials show massive fluctuations or irregularities, your IPO application could face delays or rejections.

b. Company History & Structure

Your business isn’t just evaluated on its current numbers—it’s assessed for its operational maturity, legal integrity, and structural stability. That’s why regulators set conditions around company history and its organisational framework.

1. Incorporation Age

For a mainboard IPO, your company must typically be incorporated for at least three years. This condition reflects business maturity and ensures there’s enough financial data and operational background for evaluation.
In the SME segment, this requirement can be slightly more flexible, especially if backed by strong revenue or promoter credentials.

2. Consistent Corporate Structure

A major red flag for regulators is frequent or suspicious restructuring—especially just before IPO.
So if your company recently:

• Changed its name

• Undertook a major capital restructuring

• Entered into unusual share transfer agreements
  …these may trigger deeper scrutiny.

3. Clear Shareholding & Capital Structure

Your equity structure should be clean, well-defined, and documented with the Registrar of Companies (ROC). This includes:

• No overlapping ownership

• No pending capital calls

• No disputes over shareholding or ESOPs

If any of these issues exist, they must be resolved well in advance of DRHP filing.

4. Statutory Compliance History

Regular filing of:

• Annual returns (Form MGT-7)

• Financial statements (Form AOC-4)

• Board and AGM meeting records
  …is a signal of compliance hygiene.
  Gaps or inconsistencies here can delay your IPO application or affect SEBI observations.

c. Promoter & Director Conditions

When a company lists, investors aren’t just betting on the product—they’re investing in the people behind it. That’s why SEBI has specific conditions for promoters and directors, focused on credibility, integrity, and transparency.

1. No Wilful Defaulters

Promoters must not be involved in any company that has been classified as a wilful defaulter by RBI or financial institutions.
If such history exists, IPO approval becomes extremely difficult—even for SME listings.

2. Clean Legal Track Record

Any pending:

• Criminal proceedings

• Fraud-related cases

• SEBI violations
  …must be disclosed in the Draft Red Herring Prospectus (DRHP).
  However, repeated or unresolved violations may lead to outright rejection or longer review cycles.

3. ‘Fit and Proper’ Criteria

SEBI requires all promoters and directors to meet the fit and proper person test. This includes:

• Financial integrity

• Competence

• Honesty and reputation

• Absence of regulatory bans or blacklisting

At MUDS, we often begin an IPO engagement with a promoter hygiene scan, flagging any risks and creating a clean-up roadmap if needed.

4. Share Lock-In Requirement

As part of the IPO process, promoters are required to lock in a portion of their shares for a period of up to 3 years post-listing.
This ensures commitment and stability in ownership—something investors look for when evaluating risk.

d. Operational & Compliance Readiness

This is the area most overlooked by first-time IPO aspirants—but it’s where many applications get stuck.

Even if your financials and promoters are eligible, your business must show it’s ready for the responsibilities that come with public ownership. That means systems, compliance discipline, and investor-facing infrastructure must already be in place.

1. Website Disclosure Requirements

As per SEBI guidelines, your company must have a functional website with:

• Company background

• Business overview

• Financial highlights

• Board details

• Contact information for investors
  This site becomes an official source of information for the public, analysts, and stock exchanges.

2. Registrar & Demat Arrangements

Your shares must be dematerialised, and you should have arrangements with:

• Depository Participants (DP) like NSDL/CDSL

• Registrar to the Issue (RTA) This ensures a smooth allotment and post-listing shareholding experience for investors.

3. Internal Compliance Systems

This includes:

• Regular board meetings with recorded minutes

• An established audit committee (for mainboard IPOs)

• Working internal controls and SOPs for handling financial data

If your internal operations are ad hoc or heavily founder-dependent, investors will raise concerns about long-term scalability and governance.

4. Clarity on Use of IPO Proceeds

SEBI wants to ensure funds raised through the IPO aren’t left idle or misused. Your Draft Prospectus must detail:

• Exactly how much will be raised

• How it will be used (e.g., expansion, debt repayment, R&D)

• Timeline for utilisation

Any ambiguity here can stall approval or raise investor suspicion during the roadshow stage.

4. SME IPO vs Mainboard IPO: What’s Easier?

One of the most important decisions in your IPO journey is choosing where to list. In India, this typically means picking between two broad categories: the Mainboard IPO and the SME IPO.

Both routes offer access to public capital, investor trust, and greater visibility—but the eligibility conditions, regulatory requirements, and expectations vary significantly.

Let’s break it down:

Mainboard IPO

This route is best suited for large, well-established businesses with:

• High revenue and profit margins

• Institutional interest

• Strong brand recognition

Key Conditions:

• ₹15 crore average pre-tax profit in 3 of the last 5 years

• ₹3 crore in net tangible assets

• ₹1 crore minimum net worth over 3 years

• Heavy disclosure requirements under SEBI ICDR regulations

• Minimum public offer of ₹10 crore

Who Should Choose It:

• Companies looking to raise significant capital (₹50+ crore)

• Businesses with institutional backers or large-scale operations

• Brands ready to handle quarterly investor expectations and analyst scrutiny

SME IPO

Built specifically for India’s growing small and medium enterprises, this platform is much more founder-friendly.

SME IPOs are available via:

• **BSE SME

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• **NSE Emerge

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Key Conditions:

• Paid-up capital post-issue between ₹1 crore and ₹25 crore

• 3 years of operational history (relaxable under some platforms)

• Positive net worth and consistent revenue preferred

• No major defaults or regulatory violations

• Relaxed listing agreement and governance norms

Who Should Choose It:

• Founder-led companies with growth potential

• SMEs in manufacturing, tech, logistics, healthcare, etc.

• Businesses seeking ₹3 crore–₹30 crore in public funding

So, What’s Easier?

In terms of conditions, SME IPOs are more accessible. You don’t need years of high profits or a large capital base. The focus is more on business stability, promoter integrity, and market potential.

However, SME IPOs often lack institutional visibility, and post-listing liquidity can be lower—so storytelling, investor education, and advisory support become even more important.

At MUDS, we help companies assess which route fits their growth stage, goals, and compliance capabilities—so they list smart, not just fast.

5. Common Roadblocks to IPO Eligibility

Many companies begin their IPO journey with excitement—only to hit unexpected roadblocks that delay or derail the process. These aren’t always about poor performance. Often, it’s about small oversights with big consequences.

Here are some of the most common hurdles we see:

1. Outdated or Incomplete ROC Filings

You’d be surprised how many companies fail to file basic documents with the Registrar of Companies (ROC):

• Missing board resolutions

• Unfiled financial statements

• Incomplete share allotment records

These gaps create friction during due diligence and may require months to correct.

2. Weak Internal Audit and Compliance Culture

Companies that run on instinct rather than SOPs often struggle to meet SEBI’s documentation standards. Investors want systems. Regulators want proof. If your processes aren’t documented, they don’t count.

3. Promoter Legal Issues or Cross-Holdings

Even a single promoter litigation—especially around fraud, bankruptcy, or default—can bring SEBI scrutiny. Similarly, complex ownership structures or undisclosed group companies can signal lack of transparency.

4. Poor Financial Recordkeeping

From outdated accounting practices to missing ledgers, poor data hygiene slows down DRHP preparation and delays SEBI approval.

5. Unclear Use of IPO Proceeds

Vague or overly broad fund utilisation statements (e.g., “for general purposes”) raise concerns. SEBI expects a clear breakdown—amount, purpose, and impact.

The good news? Every one of these hurdles is fixable. At MUDS, we conduct IPO audit and eligibility checks before beginning any process, so you don’t waste time—or credibility—midway.

6. How MUDS Helps You Meet the IPO Conditions

IPO conditions can feel like a maze—one misstep, and you risk delays, rejections, or worse: a poor listing that affects your long-term valuation. That’s where MUDS Management comes in.

We’re not just IPO consultants. We act as your IPO readiness partner, walking you through every requirement and making sure your business meets it—on paper, and in practice.

Here’s how we help:

1. IPO Readiness Audit

Before you commit to anything, we conduct a full diagnostic of:

• Financial statements and audit status

• Promoter and board compliance

• ROC and MCA records

• Litigation and regulatory red flags

• Governance gaps

You get a clear roadmap of what’s good, what’s missing, and what needs fixing.

2. Promoter Hygiene and Structuring

We help clean up promoter background issues, simplify ownership structures, and ensure all directorships, shareholdings, and disclosures are compliant with SEBI norms.

3. SME vs Mainboard Feasibility Analysis

Our experts assess your size, stage, growth vision, and compliance maturity to help you choose the right IPO route—so you don’t waste time preparing for the wrong platform.

4. Documentation & Process Management

We project-manage the entire eligibility stage—from coordinating with auditors to drafting disclosures to creating your investor pitch deck. No loose ends. No missed filings.

5. Long-Term Compliance Preparation

Going public means maintaining credibility long after the IPO. We help your internal team:

• Build quarterly reporting systems

• Improve board meeting hygiene

• Track post-issue governance metrics

In short, we prepare your business to meet the conditions not just for approval, but for sustained public trust.

Because IPO isn’t just about the listing—it’s about earning your place in the market, and holding it.

7. Frequently Asked Questions

Still wondering whether your business meets the conditions for IPO? You’re not alone. Here are answers to some of the most common questions founders ask when exploring the public listing route.

Q1. What if my company isn’t profitable yet?

If you're targeting a mainboard IPO, profitability is generally required—₹15 crore average pre-tax profit in 3 of the last 5 years.
However, SME IPOs offer more flexibility. If your business is operational, has stable revenues, and meets other conditions like positive net worth and clean governance, you may still qualify.

Q2. Can I go public if my company is less than 3 years old?

For mainboard listings, the company must typically be operational for at least 3 years. SME platforms are more flexible but still prefer companies with a proven business model.
In some cases, group companies or consolidated financials can help meet the age criteria.

Q3. Are all promoter conditions mandatory?

Yes. Promoters must meet SEBI’s fit and proper criteria, which includes no wilful defaults, serious regulatory violations, or pending fraud litigation.
If issues exist, they must be disclosed—and in some cases, resolved—before proceeding.

Q4. What documents are required to prove IPO eligibility?

You’ll need:

• Audited financials for the past 3 years

• Restated accounts as per SEBI norms

• Promoter KYC and legal disclosures

• MCA & ROC filings

• Corporate structure documentation

• Board and shareholder meeting records

Q5. How long does it take to become IPO-eligible?

It depends on your current standing. Some companies are ready in 3–6 months. Others may need 9–12 months to clean up records, appoint directors, or restructure shareholding.

At MUDS, we help businesses create a custom eligibility improvement plan so that listing becomes a matter of ‘when’, not ‘if’.

8. Conclusion: Conditions Are Just the Beginning

When you first think of an IPO, your mind jumps to the result—funds raised, visibility gained, and that proud moment on listing day. But the real work lies in meeting the conditions that allow that moment to happen.

SEBI’s eligibility rules may seem rigorous—and they are. But they exist to ensure that the public markets are filled with companies that are structured, transparent, and accountable. They’re not obstacles. They’re signals of a business that’s ready to scale with integrity.

At MUDS Management, we believe that IPO conditions aren’t just a checklist—they’re a growth map. A path that sharpens your strategy, strengthens your processes, and builds investor trust long before your shares hit the market.

If you’re unsure where you stand today, that’s okay. Most companies aren’t IPO-ready when they first think about listing. What matters is starting the journey with clarity—and guidance.

Whether you’re considering a mainboard listing, an SME IPO, or just want to understand the feasibility, our team is here to support you.

Let’s find out if your business is ready to go public. Contact MUDS Management for a confidential, no-obligation IPO readiness assessment.