IPO Readiness Beyond Numbers: Uncovering Hidden Governance and Compliance Gaps – A Practitioner’s Case-Based Perspective
Nowadays, almost every growing company in India dreams of getting listed on the stock exchange, especially on the SME platform. On paper, this dream looks achievable because of the eligibility criteria.
But in reality, it’s a completely different story.
IPO is not just about numbers, valuation, or financial performance. The journey from a private company to a listed entity involves a level of scrutiny and preparation that most companies don’t anticipate at the beginning. What looks like a straightforward process initially slowly turns into a detailed and sometimes overwhelming exercise once the actual work starts.
In many ways, this journey can be compared to a trek like Kedarkantha. At the starting point, it feels manageable. But as the climb begins, the difficulty increases, and without proper preparation and guidance, things can easily go off track. In this process, the Company Secretary plays a role similar to a sherpa—guiding the company, identifying risks, and ensuring that every step taken is compliant and well thought through.
During my involvement in pre-IPO compliance work, I had the opportunity to work closely on this process and understand its practical complexities. One stage that stands out is the secretarial due diligence. At first glance, everything appears in place.
But once the detailed verification begins, things start breaking.
Gaps begin to surface—some small, some technical, and some completely ignored over the years.
This article draws from such practical observations and focuses on key governance and compliance gaps identified during pre-IPO due diligence, particularly in areas like policy implementation, annual filings, capital structure, and statutory records.
Because at the end, IPO readiness is not just about showing strong numbers—it’s about how well the foundation of compliance and governance has been built over time.
Practical Governance and Compliance Gaps – Case-Based Observations
1. POSH Compliance and ICC Constitution
During IPO preparation, companies usually start working on multiple policies and committees together as part of their governance framework. One of the common ones is the POSH Policy along with the constitution of the Internal Complaints Committee (ICC).
However, in practice, a key point often gets overlooked.
The applicability of the POSH Act, 2013 is not triggered by IPO readiness—it starts the moment the company crosses the threshold of 10 employees.
But in many cases, ICC is constituted only at the time of IPO preparation—as if the law became applicable only when the IPO process started.
This creates a clear governance gap.
From a compliance standpoint, this is not just a delay—it reflects that applicability itself was not tracked properly.
And this is exactly what due diligence brings out.
2. Annual Returns and Historical Compliance Gaps
This is where things start getting serious.
During pre-IPO due diligence, annual filings are one of the first areas where inconsistencies begin to surface—particularly under Section 92 and related compliance requirements.
Most IPO-bound companies start as private limited entities. And during those years, compliance may not have been maintained with the level of discipline expected from a listed company.
That gap shows.
- Changes in authorised and paid-up capital are not always fully captured in filings. In some cases, increases during the year somehow don’t make it to the returns—as if they were optional disclosures.
- Share transfer details, which may have been treated casually at the time, suddenly become critical when every movement in shareholding needs to be traceable.
- And then comes the classic—Board Meetings and Extra-Ordinary General Meetings. Either the records don’t align with filings, or certain meetings appear to exist more in discussion than in documentation, raising concerns under Sections 173 and 117.
Individually, these may seem like small gaps.
But during due diligence, they don’t remain small. Some get reported as risk factors. Others require adjudication or compounding. And all of them, without exception, slow down the IPO process.
That’s where the realisation hits—compliance is not something that can be fixed at the time of IPO. It is something that should have been built consistently over time.
3. Bonus Shares and Capital Structuring Decisions
Bonus share issuance is often considered during the pre-IPO stage, particularly under Section 63 of the Companies Act, 2013.
On paper, it looks straightforward.
In reality, it rarely is.
Companies with significant reserves often consider issuing bonus shares to align capital structure. But this is where promoter mindset, financial strategy, and regulatory compliance all come into play at the same time. There are situations where promoters are not comfortable diluting the economic benefit built over the years. Even when advised, decisions get delayed.
And delay at this stage is not neutral—it directly impacts IPO timelines.
From a governance perspective, capital structuring is not just about numbers. It is about clarity, consistency, and regulatory alignment. And when this alignment is missing, it quickly becomes visible—not just in due diligence, but also in how the company is presented to potential investors.
4. Other Practical Compliance Areas
Apart from the major issues, there are always those “smaller” areas—which are usually taken lightly until due diligence starts.
And then suddenly, everything matters.
- Statutory registers, which are supposed to be maintained properly, often turn into a search exercise. Minutes books may exist—but whether they are complete and updated is another question.
- Share certificates—including cancelled ones—are expected to be readily available, though in reality, tracking them sometimes feels like going back in time.
- Directors’ declarations and disclosures, ideally maintained systematically, are often scattered across emails and folders.
- Documentation of video conferencing meetings—recordings and logs—are expected, but not always ensured.
- Digital Signature Certificates (DSCs), which should be under strict control, sometimes end up being handled more casually than they should be.
- And CSR applicability—something that should be tracked year-on-year—often gets attention only when someone asks, “Does it apply here?”
Individually, none of these seem critical.
But together, they reflect something much bigger—the compliance discipline of the company.
What These Gaps Actually Indicate
At a surface level, these may look like isolated compliance issues.
But they are not.
They indicate how the company has approached governance over the years.
Whether compliance was proactive or reactive.
Whether records were maintained with intent or just for formality.
Whether systems existed—or everything depended on last-minute fixes.
IPO does not create these gaps.
It only exposes them.
What Companies Should Actually Fix Before IPO
Based on practical experience, most issues identified during due diligence are not complex—they are simply the result of gaps that were never addressed on time.
The difference between a smooth IPO process and a delayed one often comes down to how early these areas are identified and corrected.
Some of the key areas that require focused attention are:
- Review of Historical Filings:
Companies should revisit past annual filings, particularly AOC-4 and MGT-7, to ensure that capital changes, shareholding patterns, and disclosures are accurately reflected. Any mismatch here directly becomes a due diligence issue. - Capital Structure Planning in Advance
Decisions relating to bonus shares, increase in authorised capital, or restructuring should be taken well before IPO preparation begins. Delays in such decisions often impact timelines and require additional disclosures. - Documentation Readiness
Statutory registers, minutes books, share certificates (including cancelled ones), and directors’ disclosures should be complete and easily traceable. In practice, this is one of the most time-consuming areas during due diligence. - Compliance Applicability Tracking
Laws such as POSH and CSR should be implemented when they become applicable—not retrospectively at the time of IPO preparation. - Alignment Between Records and Filings
Board minutes, resolutions, and statutory records must align with what has been filed with ROC. Any inconsistency creates avoidable complications. - Internal Due Diligence Before External Review
Conducting an internal compliance review before engaging external professionals helps identify gaps early and reduces last-minute pressure.
Addressing these areas proactively does not eliminate all challenges—but it significantly reduces avoidable delays and strengthens the overall IPO readiness of the company.
Beyond Listing: The Real Measure of IPO Readiness
IPO is often seen as a milestone achieved once the company gets listed.
But in reality, it is more of a transition than a finish line.
Through the course of pre-IPO work, one thing becomes very clear—most challenges do not arise because companies are unwilling to comply, but because compliance was not given consistent attention over the years. What gets missed in the early stages eventually comes back during due diligence—when every detail is examined closely.
The cases discussed above may appear routine individually. But together, they reflect the overall governance approach of the company. And that is where the difference becomes visible—between a company that is prepared and one that is reacting.
At this stage, the role of the Company Secretary becomes central—not just in managing filings, but in identifying gaps early, guiding corrective action, and ensuring that compliance becomes a system, not an event.
Because in the end, IPO readiness is not just about showing strong numbers—it is about the discipline behind them.
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