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IPO Procedure & Compliances in India (Step-by-Step)
IPO Procedure & Compliances in India (Step-by-Step)
Written by: Mayank Garg
Company Secretary | Corporate & Securities Law Professional
For: legalmantra.net
Introduction
An Initial Public Offer (IPO) is a significant milestone in the corporate life cycle of a company. Through an IPO, a company accesses public capital markets for raising funds, enhances its corporate visibility, provides liquidity to existing shareholders, and subjects itself to a comprehensive regulatory and governance framework. In India, the IPO process is governed primarily by the Companies Act, 2013, the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (SEBI ICDR), the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR), and various circulars, guidelines, and clarifications issued by SEBI from time to time.
This article explains the IPO procedure in India in a detailed, step-wise, and compliance-oriented manner, with particular emphasis on practical aspects and the role of the Company Secretary.
1. Pre-IPO Corporate Compliances
Before initiating the IPO process, the company must ensure that its corporate structure, governance framework, and statutory records are fully compliant with the applicable provisions of the Companies Act, 2013. These preparatory steps are crucial, as deficiencies at this stage often lead to delays or regulatory observations during the IPO process.
Conversion into a Public Limited Company
Where the issuer is a private limited company, it must first be converted into a public limited company in accordance with Section 14 of the Companies Act, 2013. This involves alteration of the Articles of Association to remove restrictions applicable to private companies, such as limits on the transfer of shares and the number of members. A special resolution is passed by the shareholders, and the necessary e-forms are filed with the Registrar of Companies to give effect to the conversion.
Alteration of Memorandum and Articles of Association
The Memorandum of Association and Articles of Association must be reviewed and amended to ensure that they reflect the public company status, the proposed business activities, and the capital structure required for a public issue. Any mismatch between the objects clause and actual business operations may attract adverse observations from SEBI.
Increase in Authorised Share Capital
Most companies undertaking an IPO are required to increase their authorised share capital to accommodate the post-issue paid-up capital. This requires approval of shareholders and filing of prescribed forms with the Registrar of Companies.
| Particulars | Statutory Provision | Form |
|---|---|---|
| Increase in authorised share capital | Section 61 of Companies Act, 2013 | SH-7 |
| Alteration of MOA | Section 13 of Companies Act, 2013 | MGT-14 |
Appointment of Directors and Key Managerial Personnel
A company proposing to list its securities must strengthen its board composition in line with statutory and regulatory requirements. This includes the appointment of independent directors, at least one woman director, and key managerial personnel such as the Managing Director or Chief Executive Officer, Chief Financial Officer, and Company Secretary. These appointments are essential to meet the governance standards prescribed under SEBI LODR Regulations.
Constitution of Statutory Committees
Prior to listing, the company is required to constitute various board committees. The Audit Committee oversees financial reporting and audit processes, the Nomination and Remuneration Committee formulates policies relating to appointment and remuneration of directors and senior management, and the Stakeholders Relationship Committee addresses grievances of shareholders and other security holders.
| Committee | Governing Provision |
| Audit Committee | Section 177, Companies Act & SEBI LODR |
| Nomination & Remuneration Committee | Section 178, Companies Act & SEBI LODR |
| Stakeholders Relationship Committee | Section 178, Companies Act |
Adoption of Codes and Policies
As part of IPO readiness, the company adopts various internal codes and policies, including the Code of Conduct for Directors and Senior Management, Code of Practices and Procedures for Fair Disclosure, and the Insider Trading Code under SEBI (Prohibition of Insider Trading) Regulations. These policies reflect the company’s commitment to transparency and ethical governance.
2. Compliances under SEBI (ICDR) Regulations, 2018
The SEBI ICDR Regulations, 2018 form the core regulatory framework governing public issues in India. Compliance with these regulations is mandatory for making a public offer.
Eligibility Conditions
Under Regulation 6 of the SEBI ICDR Regulations, a company must satisfy prescribed financial and operational criteria relating to net tangible assets, operating profits, and net worth. Companies that do not meet these thresholds may still access the capital market through alternative routes such as the book-building process with mandatory Qualified Institutional Buyer participation.
Minimum Promoters’ Contribution and Lock-in
The regulations require promoters to contribute a minimum of twenty percent of the post-issue capital. This minimum promoters’ contribution is subject to a lock-in period of three years, ensuring long-term commitment of promoters towards the company. Securities held by certain pre-IPO shareholders are also subject to specified lock-in requirements.
| Particulars | Requirement |
| Minimum promoters’ contribution | 20% of post-issue capital |
| Lock-in period for minimum contribution | 3 years |
Draft Red Herring Prospectus (DRHP)
The Draft Red Herring Prospectus is the principal disclosure document filed with SEBI. It contains exhaustive information about the company, including its business operations, industry overview, risk factors, promoter and management details, related party transactions, financial statements for the last three financial years, and the objects of the issue. SEBI reviews the DRHP and issues observations, which must be satisfactorily addressed before proceeding further.
Appointment of SEBI-Registered Intermediaries
The issuer company is required to appoint various SEBI-registered intermediaries for managing the IPO process.
| Intermediary | Role in IPO |
| Lead Merchant Banker | Overall management and coordination |
| Registrar to the Issue | Handling applications and allotment |
| Bankers to the Issue | ASBA and escrow mechanisms |
| Legal Advisors | Legal due diligence and documentation |
| Auditors | Financial reporting and certifications |
3. Merchant Banker and Intermediary Compliances
The Lead Merchant Banker plays a central role in the IPO process. It conducts comprehensive legal, financial, and commercial due diligence of the company and its promoters. Based on this exercise, the merchant banker issues a due diligence certificate to SEBI, confirming that the disclosures made in the offer documents are true, fair, and adequate. Various reports, certificates, and responses to SEBI observations are filed through the merchant banker.
4. ROC and MCA Compliances
During the IPO process, several statutory filings are made with the Registrar of Companies to give legal effect to corporate actions undertaken by the company.
| Form | Purpose |
| MGT-14 | Filing of special resolutions |
| SH-7 | Increase in authorised share capital |
| PAS-3 | Return of allotment |
| Prospectus / RHP | Filing of offer document |
Timely and accurate filing of these forms is critical to avoid penalties and regulatory issues.
5. Stock Exchange Compliances
Before opening the issue, the company must obtain in-principle approval from the stock exchanges where its securities are proposed to be listed, such as BSE and NSE. The company is also required to execute the listing agreement and demonstrate compliance with corporate governance requirements under SEBI LODR Regulations.
6. Post-IPO Compliances
Upon successful completion of the IPO, the company enters the post-listing compliance phase. This includes listing and commencement of trading of securities, credit of shares in dematerialised form to successful applicants, refund of excess application money, and redressal of investor grievances. Thereafter, the company must comply with continuous disclosure requirements under SEBI LODR Regulations, including quarterly and annual financial disclosures and corporate governance reporting.
7. Other Regulatory Compliances
Depending on the nature of investors and business operations, the company may also be required to comply with provisions of FEMA and RBI guidelines relating to foreign investment, the Income Tax Act for tax-related disclosures, GST laws where applicable, and the relevant stamp laws for issuance of share certificates.
Role of Company Secretary in an IPO
The Company Secretary plays a pivotal role throughout the IPO process. From the initial structuring stage to post-listing compliances, the CS ensures that the company adheres to all applicable corporate, securities, and governance laws. The CS coordinates with merchant bankers, legal advisors, auditors, SEBI, stock exchanges, and the Registrar of Companies. Drafting of board and shareholder resolutions, preparation and vetting of offer documents, secretarial due diligence, and implementation of corporate governance mechanisms are core responsibilities handled by the Company Secretary.
Conclusion
An IPO is not merely a capital-raising exercise but a comprehensive transformation of a company into a regulated public entity. Successful completion of an IPO requires meticulous planning, robust governance structures, and strict compliance with statutory and regulatory requirements. The Company Secretary, as a key governance professional, plays an indispensable role in ensuring that the IPO process is transparent, compliant, and aligned with investor protection principles.
Disclaimer: This article is intended for academic and informational purposes only and does not constitute legal or professional advice.