Key things to consider when planning for SME IPO

Key things to consider when planning for SME IPO
Published on: February 08, 2024

When a company is planning to launch its IPO, it needs to comply with many listing norms. Sometimes, though the company wants to bring its IPO in a span of 2-3 months but due to the non- compliance of certain norms, the IPO gets delayed and the company might lose an opportune time in the market. 

Hence to minimize this loss of time, a company can start preparing itself and initiate the legal norms for IPO. A company has to comply with the following requirements and early compliance eases the process of IPO as explained below.

  • Dematerialisation
  • Conversion of private to public limited
  • Dataroom
  • Maintain Minutes of Meeting
  • Record of Litigation Proceedings

A - Dematerialisation of shares

In simpler terms, Dematerialisation is a process of converting physical securities such as share certificates and other documents into electronic format and this electronic mode of holding shares is done in a Demat Account. Now, a depository is responsible to hold this electronic form of securities called as a registered depository participant (DP). There are two registered depositories in India registered with SEBI operating in India. They are:

  • NSDL (National Securities Depository Ltd.)
  • CDSL (Central Depository Services (India) Ltd.)

Who is a depository participant?
A Depository participant is an agent of Depository such as NSDL or CDSL. They are given license to operate by a depository, under the provisions of The Depositories Act, 1996. Hence in simpler terms, they are the stockbrokers registered with depository like Zerodha, Angel One, 5 paisa and others. An investor, new to the stock market, needs to approach a depository participant to open a demat account.
Process of dematerialization

  • First of all, a demat account needs to be opened and one has to choose a Depository participant that offers demat services.
  • The client (registered owner) has to submit a request to the DP in the Dematerialisation Request Form (DRF) for dematerialisation, along with the certificates of securities to be dematerialised. Before submission, the client has to deface the certificates by writing "SURRENDERED FOR DEMATERIALISATION".
  • Upon verification of the form, the DP issues an acknowledgement slip duly signed and stamped to the client.
  • The DP then processes this request along with the share certificates to the company and simultaneously to registrars and transfer agents (R&T) through the depository.
  • On approval of request, the share certificates in the physical form would be destroyed and confirmation of dematerialization would be sent to the Depository.
  • Dematerialisation process can take up-to 15-30 days for completion.

B-Conversion of private to public limited

 A company needs to be converted into a public company before inviting the public to share its ownership. The process of conversion is here below:


1 - Conduct a board meeting to pass board resolution for approval of general meeting, alteration of MOA and AOA.

2 - General meeting will be conducted and special resolution would be passed for conversion, alteration of MOA and AOA and for the name change of the company i.e. private word will be deleted. 

3 - An e form MGT-14 has to be filed within 30 days of passing of special resolution with following attachments:

  • Notice of general meeting along-with copy of special resolution
  • Altered MOA
  • Altered AOA


4 - An E-form INC 27 is to be filed within 15 days of passing of special resolution with following attachments with ROC:

  • Notice of general meeting along with copy of general meeting
  • Altered MOA, Altered AOA and details of Director Promoter and others members along-with details of shares held by them. Details of members voting in favour and against the resolution and lastly Minutes of the General Meeting.

Post Conversion Requirements: 
1) Apply for a new PAN card.
2) All Business letterheads and related stationery should be updated with the company’s new name.
3) The bank account details of the company need to be updated.
4) Intimation to concerned authorities.
5) Printing of copies of New MOA and AOA.

C-Data Room

In order to expedite the IPO process, the company shall create a data-room wherein all the audited financial statements and taxation related matters (at least for last three fiscals) are stored so that they are handy whenever a reference is required. Ready availability of financials speed up the process of drafting DRHP and RHP wherein such information is used.

D-Maintain Minutes of Meetings
A company desirous of listing should regularly maintain minutes of meeting. Minutes of meetings are recorded for keeping an organized track of the important issues and decisions of the Company. Recordings are beneficial that can help in keeping the organization to develop in a healthy and transparent way. Minutes provide a brief outline of the noteworthy actions taken by a company and provide a structure for future reference.
The sub-section (1) of Section 118 of the Companies Act, 2013 provides that every company shall record minutes of the general meeting’s proceedings. A separate book for meeting minutes shall be maintained for each meeting such as:

  • General Meetings (Members),
  • Board Meeting (Directors),
  • Meetings of each Committee of the Board, or
  • Meetings of the Creditors

Meeting of the minutes may include:

  • Subject of the meeting.
  • Location (if relevant)
  • Date and time.
  • Attendees.
  • Agenda items.
  • Summary of each agenda point, including who handled it.
  • Votes taken and the results.
  • Status of action items.

E- Litigation Proceedings 

The Company shall maintain a record of all litigation proceedings outstanding by the company or against the company. The litigation related information has to be disclosed in the DRHP and RHP documents to be filed with the designated stock exchange.

 

FAQs

 

What is dematerialisation of shares?

Dematerialisation is the process of converting physical securities such as share certificates and other documents into electronic format. 

Who is a depository participant?

A depository is an organization which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in an electronic form.

What is the process of dematerialisation?

The process starts with opening a Demat account and takes around 15-20 days to complete it.

What are minutes of meeting?

Meeting minutes are the notes recorded during a meeting. It highlights the key issues that are discussed, motions proposed or voted on, and activities to be undertaken. 

How to convert into a public limited company?

One has to follow certain steps as laid down under Companies Act 2013 to convert into a public limited company.

What are the preliminary steps to plan for IPO?

A company can start preparing itself and initiate the legal norms for an IPO. To ease the process of IPO, dematerialisation, conversion are some of the steps to be followed.

 

 

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