SEBI Board Meeting Outcome: Key Reforms for SME IPOs

On December 18, 2024, SEBI's board approved significant changes to the SME IPO framework to enhance market transparency and investor protection. Small and medium enterprises that have achieved an operating profit of ₹1 crore for two of the last three financial years are now eligible to launch for an IPO. The Offer for Sale (OFS) segment is set some limits to some extent to 20% of the total issue size, and along with selling shareholders are not permitted to sell over 50% of their holdings. Moreover, one of the other reforms include, the lock-in duration for promoters beyond the minimum promoter contribution (MPC) will be lifted after one year, while the remaining 50% will be released after two years.

Other key reforms include the allocation under the Non-Institutional Investors (NII) category via a draw of lots method, restricting the amount for general corporate purposes to 15% of the amount raised or ₹10 crore, whichever is lower. SME issues with objects as repayment of loans from promoters or promoter groups will not be permitted. Related Party Transaction (RPT) norms will now apply to listed SMEs, with RPTs considered material if they are 10% of annual consolidated turnover or ₹50 crore, whichever is lower.