Did you catch the big news from the stock market recently?
Last quarter, both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) were buzzing with activity, launching an impressive 92 initial public offerings (IPOs).
Out of these, 31 were big players on the main board, and a surprising 61 came from the smaller, sprightly sector of small and medium enterprises (SMEs).
Now, here’s something even more exciting: this marks a whopping 72% increase in IPOs compared to this time last year.
It seems the market is really heating up!
And there’s a twist that’s making it even hotter.
The Innovators Growth Platform (IGP), also known as the SME platform, set up by SEBI, is making waves.
It’s tailored for startups, smoothing out the path to going public by easing the usually strict criteria needed to list on the main boards.
Ever wonder what it’s like behind the scenes of an IPO?
Think about all the professionals—lawyers, investment bankers, accountants, and more—all gearing up to launch companies like Tata Technologies or Doms Industries into the public eye.
And guess what?
You could play a key role in this whole exciting process.
Today, let’s unpack how you, as an in-house counsel, can help steer your company towards a successful IPO.
You see, going public isn’t just about ringing the bell on the Stock Exchange.
It’s about dotting every ‘i’ and crossing every ‘t’ to ensure you’re compliant with regulations and investor investigations.
So how can you capitalize on this trend as an in-house counsel? By leveraging your legal expertise to guide your company through the IPO process smoothly.
From drafting and reviewing documents to liaising with regulators and negotiating with stakeholders, your role is successful in ensuring a successful IPO journey.
But are you scared because you don’t know how you can help your company go public?
Don’t worry, I am here to guide you through this.
So, if your company wants to go public, here is a list of responsibilities that you as an in-house counsel would have to undertake:
- Reverse Due Diligence
Reverse due diligence is the process of conducting a thorough audit and inspection of your company to ensure that the compliances, documentation and approvals are in place. This helps in assessing the IPO readiness of the Company. Any red flags during such DD need to be noted and actions need to be taken to remove such red flags.
For example – If any returns for tax have not been filed on the due date, such returns must be filed immediately and requisite penalty be paid.
- Eligibility Assessment
This assessment also involves checking whether your company meets the listing eligibility criteria for conducting the IPO or not. This will depend on the chosen stock exchange (NSE, BSE) and the listing platform (main board, SME / Innovators growth platform).
Criteria typically include financial performance and the past track record of the company. The Criteria for eligibility for an IPO are provided by SEBI on their website, you can also check the eligibility criteria for stock exchanges on the websites of BSE and NSE respectively.
One such eligibility for both BSE and NSE is that the post-issue equity shall be more than 10 crore for a main board listing. Listing on the SME BSE requires a Net worth of at least 1 crore for the last 2 financial years whereas one of the criteria for NSE is that the company should have had operating profit for 2 out of the last 3 years.
- Board Approval & Appointment of Advisors
Upon confirming eligibility, the next crucial step involves obtaining formal approval from the board of directors to proceed with the listing process. Additionally, it’s important to assemble a team of seasoned advisors, including investment bankers and reputable auditors. These advisors play a pivotal role in navigating the complexities inherent in the listing process.
- Statutory & Regulatory Approvals
The company must navigate a substantial list of regulatory approvals required at each transaction stage. Numerous regulatory filings, crucial for both the company and the book-running lead managers (BRLMs), must be completed.
This includes tasks such as preparing financial statements according to ICDR regulations, refining the business model and prospectus plan, and obtaining regulatory clearance for the IPO from SEBI, ROC and the stock exchanges. Collaboration between BRLMs, legal counsels, SEBI, and the stock exchange is integral throughout these procedures.
- Strategizing/Deal Structuring
Numerous critical strategic decisions need to be made, ranging from selecting the listing venue and exchange to determining terms and conditions, including exits for strategic investors and choosing the right underwriter. Finding initial backers to ensure a successful IPO launch is common practice. Timing is crucial, and senior lawyers collaborate to anticipate and address potential hurdles, including regulatory difficulties.
- Drafting of Offer Letter /Red herring Prospectus: “Offer document” which is filed with the Registrar of Companies (ROC) and Stock Exchanges is crucial for regulatory approval and investor information. An offer document covers all the relevant information to help an investor make his/ her investment decision. Therefore, proper structured and error free drafting of the prospectus is a very important part of an IPO. A misstatement in the prospectus can attract civil and criminal liability.
- Price Discovery:
During the price discovery phase, your legal expertise contributes to ensuring compliance with pricing regulations and fairness to investors. The company will determine the IPO price through a fixed price or book-building method. Whichever method your company chooses as the counsel you need to ensure that all pricing regulations under SEBI are being followed.
- Issue of Advertisement: You on behalf of the company shall, after filing the red herring prospectus (in case of a book-built issue) or prospectus (in case of fixed price issue) with the Registrar of Companies, make an advertisement in an English National daily with wide circulation, one Hindi National newspaper with wide circulation and a regional language newspaper with wide circulation at the place where the registered office of the issuer is situated.
- Post Listing Compliance:
Following a successful IPO, your responsibility as an in-house counsel shifts to post-listing compliance. You oversee ongoing obligations such as post-issue advertisement giving details of subscription and manner of allotment, financial reporting, corporate governance, and regulatory disclosures. Your role is pivotal in upholding transparency, accountability, and investor protection, thereby safeguarding the company’s reputation in the market.
- Drafting Policies to comply with SEBI regulations:
Once your company is listed the number of regular compliances and reporting requirements increase substantially. As the in-house counsel, you need to ensure that all policies and procedures that are required to be put in place as per SEBI are drafted and implemented in a timely manner.
For Example – Document Retention & Archival Policy, Whistle Blower Policy, Code of Conduct for Directors and Senior Management, Insider Trading Policy and many other policies as per applicable SEBI regulations
So, you can see that the role of an in-house legal counsel begins even before the IPO process is initiated and continues till much after the closing of the IPO as well to ensure continued compliance with statutory requirements.