Reason why SME IPOs are Failing

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. XVI), Companies Act (Sections 62, 188 & 194), issuers must demonstrate documented and durable control structures before listing.



 Real precedent :


In Pinnacle Infotech Ltd. – SAT (2024), a promoter challenged board actions outside the SHA framework.

The issue raised a governance red flag, and the IPO was paused until control rights were contractually re-established.


This is becoming the standard due-diligence approach.



 The 2025 Rule: Governance > Turnover


Investors now prefer:


A ₹60 crore business with strong governance

over

A ₹300 crore business with emotional, undefined control


Because when promoters fight, markets collapse.


“Family unity” does not equal “investor safety.”



The Promoter Governance Stack: 


Family/Promoter Charter

        ↓

Shareholder Agreement (SHA)

        ↓

Board Governance & Voting Matrix

        ↓

Delegation of Authority Framework


This is no longer for large corporates.

This is now the minimum requirement even for SME listings.



Final message for promoters:


Promoters don’t lose IPOs because they are wrong.

They lose IPOs because their documents are weak.


If you want investors to trust your company:


🔹 Put control on paper

🔹 Don’t rely on emotions or relationships

🔹 Remove ambiguity before due diligence begins


An IPO succeeds only when governance is stronger than blood relations.

This blog is authored by Company Secretary Ronak Gupta. He is author of many blogs and runs many websites and youtube channels. His work is dedicated to corporate laws, legal, secretarial, professional services and also in strategy formulations for corporates. Mail him at: csronakgupta23@gmail.com or call at :9910226715

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