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The Real Reason SME IPOs Are Failing in 2025 — Not Tax, Not Compliance but Promoter Disputes The 2025 SME IPO cycle has exposed a sharp pattern: Companies are not failing because of GST scrutiny, CSR gaps, or litigation. They are failing because promoters and family members don’t have control documented on paper. Merchant bankers, PE funds and due-diligence teams now prioritise one question above everything else: “Who actually controls this company — legally, not emotionally?” When the answer is unclear, valuation and revenue don’t matter.  What triggers rejection during due diligence ? Banks and lead managers are disqualifying issuers where: • No Shareholder Agreement (SHA) • No Reserved Matters / Veto Rights matrix • Family-based “informal control” over decisions • Unclear exit & valuation rights • Signature authority depends on relationships • Transmission on death/dispute not defined Compliance is not enough. Governance clarity is mandatory. Under SEBI ICDR Regulations (Sch...

Regulatory and tax things to do before an IPO in India (illustrative list):  1. Create a family trust and transfer shares before IPO. Post IPO, one needs to wait for 3 years or obtain SEBI’s approval.  If one is planning for an IPO in less than a year, then avoid transferring all shares. Keep a portion out for Minimum Promoter Contribution (MPC), and OFS requirement. Unlike income tax, transfer to trust isn’t considered an exempt transfer under ICDR regulations - MPC and OFS period starts from the day the trust obtains the shares.  Pre IPO - one has the option of using sub trust structure and corporate trustee. None of these options are available post listing.  If more than 1 families/family trusts are involved, execute an SHA. This is critical. SHA should supercede the trust and not the other way around.  Commonly misunderstood, SHAs are valid post listing as well, albeit with limitations. For a listed company, SHA cannot bind a company, but binds the relevant ...

Bonus Shares to Foreign Investors? Does FCGPR Still Applies. In transactions involving foreign investors, there's one compliance detail that often slips through the cracks — Form FCGPR filing for bonus share allotments. A common misconception?  “No funds received = No FCGPR required.”  Unfortunately, that’s not how FEMA works. Under the current FEMA and RBI framework, even if the company is issuing bonus shares, an FCGPR filing is mandatory within 30 days of the allotment. Here’s what that means in practice: Yes, FCGPR is required. Even if no consideration is received, the regulatory reporting obligations remain intact. Delays or defaults here can impact future capital rounds and RBI approvals. No remittance? Here’s how to fill the form: 1. The “Issue Price per Instrument” field, enter “0”. 2. Under “Mode of Payment,” select “Others” and include the note:  “Bonus shares issued without receipt of consideration.” What about FIRC/KYC? Since there's no fund flow, banks won’t ...

Locked Box in M&A: Because No One Likes Paying for a Pizza with Missing Slices Imagine agreeing to buy a pizza based on a photo taken a month ago. You fix the full price today, but the delivery takes time. When the box finally arrives, you open it and find a slice missing. That missing slice? In M&A, we call that leakage. In a locked box deal, the purchase price is fixed based on historical financials. From that date onward, the buyer owns the economic value of the business, even though legal ownership transfers later. To protect the buyer, the SPA includes a promise from the seller not to extract value during this interim period. Leakage typically covers dividends, bonuses to the seller group, loan repayments or any value transfers not agreed in advance. Permitted leakage is the one slice everyone agreed the seller could have — maybe a regular salary or pre-approved transaction expense. A closing date representation in the SPA might say: “The Seller undertakes that there has b...

Why Due Diligence is a Game-Changer for ARCs in NPA Acquisitions For Asset Reconstruction Companies (ARCs), buying Non-Performing Assets (NPAs) from banks and NBFCs may seem like an easy way to profit, but without proper due diligence, it can quickly turn into a financial disaster. Key Reasons Why Due Diligence Matters: ✅ Fair Valuation: NPAs are often overpriced; ARCs must ensure they pay for real recovery potential, not inflated figures. ✅ Legal & Compliance Risks: Many NPAs come with disputes, missing documents, or regulatory hurdles—overlooking these can lead to costly delays or total loss. ✅ Borrower & Asset Quality Check: Not all defaulters are the same. Some may settle, while others use legal tactics to avoid payment. Knowing the difference is crucial. ✅ Collateral Verification: Assets backing the loans may be encumbered, disputed, or overvalued. A deep check on security is essential for real recoveries. ✅ Repayment Potential: If the borrower’s business is beyond revival...

This article is about the calculations involved in the disclosure of section 197(12). Also read on for clarification on the median calculation related to this section, which is commonly found in the Annual Report of Listed Companies.  This write-up will guide you through the process of calculating and understanding the median disclosure required in the Board Report. 📜 Legal Requirement u/s 197(12) Every Listed companies must disclose the ratio of each director’s remuneration to the median remuneration of employees in their Board’s Report.  But how is the median remuneration calculated? Let’s break it down step by step. 👇 The median is the middle salary value when all salaries are arranged in ascending order. Unlike the mean (average), the median is not affected by extreme high or low salaries, making it a more accurate representation of the typical employee salary. 🔹 Step 1: Gather Salary Data Collect the annual salaries of all permanent employees in the company. 🔹 Step 2:...

Overview  Latest regulations mandates security clearance from the Ministry of Home Affairs (MHA) for individuals from land-bordering countries, such as China, seeking directorships in Indian companies. This article unpacks the essential requirements, implications, and step-by-step application process at E-SAHAJ SEWA for this mandatory clearance, empowering businesses and aspiring directors to ensure smooth compliance and national security. Stay ahead of the curve and ensure success in India's dynamic business environment with this comprehensive guide. India’s corporate landscape is evolving, and so are its regulations. In June 2022, a significant amendment to the Companies (Appointment and Qualification of Directors) Rules [Notification] made security clearance from the Ministry of Home Affairs (MHA) mandatory for individuals from countries sharing land borders with India seeking directorships in Indian companies. While aiming to safeguard national security interests, this new req...

Fast Track Mergers The introduction of the concept of fast track mergers or FTMs has led to a significant change in the M&A landscape. Section 233 was made effective from 15th December, 2016. Prior to the introduction of FTM vide Section 233 and Rule 25 of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 there was only one unified merger process for all companies in our India. This process inter alia included approval of the merger scheme from the Tribunal. This led to delays and unnecessary complications. What is a Fast Track Merger? Fast Track Merger as it's name suggests is a short cut route comparatively to our traditional prescribed Mergers and Amalgamations. It is very interesting to note that the term Fast Track Merger is not defined in the Companies Act, 2013. It is called with such name informally by all of us. What all Companies are eligible for Fast Track Mergers? Fast Track Mergers are not available for each types of Companies, only following Com...

Non-Convertible Debentures (NCDs)  Non-Convertible Debentures (NCDs) are debt instruments issued by a company that cannot be converted into equity shares. These debentures are redeemed at the end of a specified period. An NCD represents an obligation by the company to repay the principal amount along with a specified rate of interest. After the specified period, the said debentures can be redeemed. Redemption of debentures is the process of a company repaying the principal amount of its debentures to the debenture holders. It's a planned financial move to ensure that the company can meet its debt obligations. The Issuer Companies can adhere to the following process for the redemption of Non-Convertible Debentures (NCDs).    1. Verify Terms of Issue ·   Review the Debenture Trust Deed and the Offer Document/Prospectus for redemption terms, including: o     Redemption date. o     Mode of redemption (lump sum or in...