In India, most small businesses start as sole proprietorships — a simple business structure with minimum compliance and cost. But when these businesses grow and seek large-scale funding, they often consider entering the capital market through an SME IPO (Small and Medium Enterprise Initial Public Offering).
However, a sole proprietorship cannot directly go for IPO. To get listed on NSE Emerge or BSE SME, business owners must restructure their business and meet the required SME IPO eligibility criteria. Here’s a step-by-step guide on how to make this transition.
Step 1: Convert Sole Proprietorship into a Company
Before approaching the SME exchange, the business must first convert into a company under the Companies Act, 2013.
Two common methods:
- Register a Private Limited Company or Limited Company directly.
- Convert your proprietorship into a company by transferring assets, liabilities, and goodwill.
Pro tip: Most entrepreneurs prefer starting with a Private Limited Company, and later convert it into a Public Limited Company before filing for IPO.
Step 2: Understand SME IPO Eligibility Criteria
Before going public, ensure the company meets NSE Emerge or BSE SME IPO norms. The common requirements include:
- Business Track Record: Minimum 3 years (proprietorship history can be considered).
- Net Tangible Assets: At least ₹1.5 crore.
- Net Worth: Minimum ₹1 crore.
- Profit Track Record: Profits in at least 2 out of the last 3 years.
- Paid-up Capital (Post IPO): Between ₹1 crore and ₹25 crore.
Note: Some relaxations apply for tech startups or venture-funded businesses.
Step 3: Convert to Public Limited Company
Before filing the IPO, the company must become a Public Limited Company. It must comply with:
- Minimum 3 Directors
- Minimum 7 Shareholders
- Proper Corporate Governance and SEBI disclosure norms
This step is essential to gain regulatory approval and increase investor confidence.
Step 4: Appoint IPO Intermediaries
Launching a successful IPO requires an expert team. Appoint:
- SEBI-registered Merchant Banker (Lead Manager) – Mandatory
- Company Secretary & Legal Advisors – For due diligence
- Chartered Accountants – For restated audited financials
- Registrars, Underwriters & PR Team – For post-IPO process
These professionals ensure the business remains IPO compliant at every stage.
Step 5: Prepare & File the DRHP
Work with your Merchant Banker to draft the DRHP (Draft Red Herring Prospectus). This includes:
- Company overview
- Financials
- Risk factors
- Future expansion plans
- Promoter background
- Business model
DRHP is filed with the Stock Exchange and SEBI, depending on the size of the issue.
Step 6: SME IPO Launch Process
Once approvals are received:
- Investor Roadshows to attract potential investors
- IPO Opens for bidding
- Allotment & Listing on NSE Emerge or BSE SME platform
Listing provides visibility and access to long-term capital.
Step 7: Benefits of SME IPO for Sole Proprietors
Here’s why SME IPOs are a game changer:
- Raise Capital for business expansion and working capital
- Brand Recognition and credibility in the market
- Liquidity for Promoters through partial share exits
- Migration to Main Board (BSE/NSE) after meeting eligibility
- Improved Corporate Governance and investor trust
Conclusion: Can a Sole Proprietor File an IPO?
A sole proprietor cannot file an IPO directly, but with proper business restructuring, financial planning, and compliance, a sole proprietorship can become an IPO-ready public company.
Expert Support for SME IPO Filing – Lal Ghai & Associates
At Lal Ghai & Associates, we specialize in:
- Business restructuring
- Private to public company conversion
- SME IPO filing and end-to-end execution
- SEBI & ROC compliance
- DRHP preparation and audit support
If you’re a business owner looking to take your company public, we’re here to guide you at every step.
Contact Us Today to begin your SME IPO journey.