{"id":26605,"date":"2021-02-27T12:51:50","date_gmt":"2021-02-27T07:21:50","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=26605"},"modified":"2021-02-27T12:52:07","modified_gmt":"2021-02-27T07:22:07","slug":"sebi-guidelines-for-ipo","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/sebi-guidelines-for-ipo\/","title":{"rendered":"An Extensive Outlook on the SEBI Guidelines for IPO"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Capital plays a pivotal role for any organization to support its activities financially &amp; maintain its liquidity. At any phase of service life, a company seeks additional funds for further expansion and plans to increase capital via available options. The capital market of a nation ensures a balance in the flows of funds within the economy, allowing firms to procure funds in a more regulated and secured manner. A company that seeks more funds can select the option of issuing its shares in the primary market and inviting an outsider to be its shareholders. This method of issuing securities is known as \u201cgoing public\u201d. Such actions are regulated by the government authority known as the Securities Exchange Board of India. This write-up aims to provide details regarding the different SEBI guidelines for IPO.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/sebi-guidelines-for-ipo\/#An_Overview_on_Basics_of_Public_Offer\" >An Overview\non Basics of Public Offer<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/sebi-guidelines-for-ipo\/#Viable_Benefits_of_Going_for_Public_Offer\" >Viable Benefits\nof Going for Public Offer<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/sebi-guidelines-for-ipo\/#What_are_the_SEBI_Guidelines_for_IPO_in_India\" >What\nare the SEBI Guidelines for IPO in India?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/sebi-guidelines-for-ipo\/#Exempted_Entities_Covered_under_the_SEBI_Guidelines_for_IPO\" >Exempted Entities Covered under the SEBI Guidelines for\nIPO<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/sebi-guidelines-for-ipo\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"An_Overview_on_Basics_of_Public_Offer\"><\/span>An Overview\non Basics of Public Offer<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Before we start exploring the core topic, let\ndive into some fundamentals that would help you understand the subject matter\nwith a minimum of hassle.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Public\noffer or Public Issue<\/h3>\n\n\n\n<p>Public offer or Public\nissue refers to releasing securities of a firm to the investors and letting\nthem be a part of a company as a shareholder. A public Offer is typically made\nto procure additional funds for the company to meet its fiscal needs. Public\nOffer has been classified as IPO and FPO. Here the term FPO stands for Further\nPublic Offer.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Initial\nPublic Offer (IPO)<\/h3>\n\n\n\n<p>When a firm that is not\nlisted on the stock exchange (generally known as an unlisted company) released\nits securities or made existing securities accessible to the general public for\nsale for the first time is known as an Initial Public Offer or IPO. IPO enables\nthe firm to list &amp; trade its securities on several stock exchanges and procure\na large amount of funds.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Further\nPublic Offer (FPO)<\/h3>\n\n\n\n<p>When a listed company releases fresh securities or makes an offer regarding the sale, it is referred as Further Public Offer (FPO) or Follow-On Offer.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/amendments-to-sebi-mutual-funds-regulations-1996\/\">Amendments in the SEBI (Mutual Funds) Regulations, 1996 <\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Viable_Benefits_of_Going_for_Public_Offer\"><\/span>Viable Benefits\nof Going for Public Offer<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A company may opt to go public for various reasons such as product development, exploring new markets, addressing liabilities, business expansion, etc. The viable advantages of making a public offer are mentioned below:-<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/02\/Benefits-of-Public-Offer.png\" alt=\"Viable Benefits of Going for Public Offer\" class=\"wp-image-26671\" width=\"477\" height=\"461\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/02\/Benefits-of-Public-Offer.png 626w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/02\/Benefits-of-Public-Offer-300x290.png 300w\" sizes=\"(max-width: 477px) 100vw, 477px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_SEBI_Guidelines_for_IPO_in_India\"><\/span>What\nare the SEBI Guidelines for IPO in India?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Securities Exchange\nBoard of India (aka SEBI) was founded by the government in 1988. It is the sole\nauthority that looks after the Indian corporate securities market- primary &amp;\nsecondary market. Private firms and commercial companies (driven by the central\ngovernment) can enter the primary market to procure funds from the public to\nmeet their financial requirements.<\/p>\n\n\n\n<p>To ensure a transparent\nand unbiased market, SEBI keeps in amending the process of Initial Public Offer\n(aka IPO). Previously, SEBI lacks the right to regulate the securities market.\nDuring that period, such rights were under the possession of the Controller of\nCapital Issues. When the Exchange Board of India Act 1992 got the green signal\nfrom parliament, SEBI was conferred with various rights to regulates and\noversee the securities market.<\/p>\n\n\n\n<p>The SEBI \u2013 <strong><em>Securities Exchange Board of India<\/em><\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Securities_and_Exchange_Board_of_India\"><strong><em>[1]<\/em><\/strong><\/a><\/sup> (Issue of Capital and Disclosure Requirements) Regulations, 2009, (aka SEBI ICDR) lays down various provisions related to the public offer. In addition to that, the Securities Contract (Regulation) Rules, the Securities Contract (Regulation) Act, 1957, and the Companies Act, 2013 render the compliances &amp; process related to IPO filing.&nbsp;<\/p>\n\n\n\n<p>The SEBI guidelines\nregarding IPO are bifurcated into two processes- for listed and unlisted\ncompanies.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">SEBI Guidelines for IPO (Unlisted Companies)<\/h3>\n\n\n\n<p>There are three different routes accessible to an unlisted firm for making its IPO in India.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Profitability Route \u2013 Entry Norm 1<\/h4>\n\n\n\n<p><strong><em>Under this route, the following SEBI guidelines for IPO have to be complied with:- <\/em><\/strong><\/p>\n\n\n\n<ul><li>The\nmini. net worth of the issuer should be higher than Rs 1 crore each preceding\nthree years.<\/li><li>The\nmini. net tangible assets of the issuer should be higher than Rs 3 crore each,\n&amp; not more than fifty percent of these assets must be present in the form\nof monetary assets in the preceding three years.<\/li><li>The\nmini. average operating profit (excluding tax) of the firm must be higher than\nRs 15 crore in the past three years.<\/li><li>The\nissue size should not exceed more than five times the pre-issue net worth.<\/li><li>If\nthe firm has altered its name, then a mini. of 50% of the revenue in the past\nyear should be received from tasks conducted under the new name.<\/li><\/ul>\n\n\n\n<p>In addition to that, to\ncomply with ease of doing business and permits firms to make their public offer\neasily, SEBI has rolled out two routers for firms who cannot meet the\nrequirements under the profitability route. The given routes also enable a firm\nto access the primary market for its public offer:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">QIB Route \u2013 Entry Norm II<\/h4>\n\n\n\n<p>Companies that seek\nlarge funding to support their operations but cannot do so under the\nprofitability route can opt for the QIB route to make their public offer. Under\nthis route, the company can get access to the public interest through the\nbook-building procedure.<\/p>\n\n\n\n<p>Under the process, 75%\nof the firm\u2019s net offer must be allotted to the Qualified Institutional Buyers\n(QIBs). If the firm fails to meet the minimum subscription of QIB, it has to refund\nthe subscription fee without exception.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Appraisal Route \u2013 Entry Norm III<\/h4>\n\n\n\n<p>Under this route, the\npublic is appraised &amp; participated to the extent of 15% by Scheduled\nCommercial Bank or Financial Institutions, of which a minimum of 10% is\nreleased by the appraisers.&nbsp;The appraisal route is limit by a condition\nthat a mini. Post-issue face value capital should be Rs 10 crores, or\ncompulsory market-making should be there for a minimum period of two\nyears.&nbsp;<\/p>\n\n\n\n<p>All the norms above also\nencompass the requirement of a minimum of 1000 prospective allottees in the\npublic issue of the issuer company.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">SEBI Guidelines for Public Issue (Listed Companies)<\/h3>\n\n\n\n<p><strong><em>A listed firm that intends to make a further public issue (aka FPO) meets the given SEBI guidelines:<\/em><\/strong><\/p>\n\n\n\n<ul><li>If\nthe firm has altered its trade name during the last one year, at least 50 % of\nits turnover for the preceding one year must be from tasks carried out by the\nfirm under its new name.<\/li><li>The\nsize of its issue should not exceed than five times the pre-issue net worth as\nper the audited balance sheet of its preceding financial year.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Exempted_Entities_Covered_under_the_SEBI_Guidelines_for_IPO\"><\/span>Exempted Entities Covered under the SEBI Guidelines for\nIPO<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>SEBI has put certain kinds of entities outside the regime of norms above for making a public issue. These are as follows:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Private\n&amp; Public Sector Banks<\/li><li>Infrastructure\nCompany which has examined its project by the IL&amp;FS or Public Financial\nInstitution or IDFC, and at least 5% of its project cost is financed by any of\nthese institutions. No entry norms are issued for the listed firm that intends\nto make the right issue.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The SBI Guidelines for\nIPO by an organization serve an essential purpose- protecting the interest of\nthe firm and its shareholders. Often, a firm may opt for irrational ways to\ninfuse more capital, which may disrupt the shareholder\u2019s interest. SEBI\nguidelines for IPO ensure a legitimate process of IPO by a company.<\/p>\n\n\n\n<p>On the other hand, the shareholder must conduct an extensive audit before opting for the company\u2019s IPO offer. Besides, a company must ensure conformity with all regulations and guidelines laid down by the SEBI for IPO before its make its first public offer or \u2018go public\u2019.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/sebi-protecting-investors-right\/\">How SEBI Protects Investor Right? <\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Capital plays a pivotal role for any organization to support its activities financially &amp; maintain its liquidity. At any phase of service life, a company seeks additional funds for further expansion and plans to increase capital via available options. The capital market of a nation ensures a balance in the flows of funds within the [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":26639,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[153,160],"tags":[1567],"acf":{"service_id":"227"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":10847,"readingTime":5,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/26605"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=26605"}],"version-history":[{"count":16,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/26605\/revisions"}],"predecessor-version":[{"id":26673,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/26605\/revisions\/26673"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/26639"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=26605"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=26605"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=26605"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}