Before Bell Rings! Pre-listing compliances for IPOs: Preparing beyond Offer Document

Summary: An Initial Public Offering (IPO) involves much more than raising capital and securing regulatory approvals. Companies preparing for listing must establish a comprehensive securities-law compliance framework covering corporate governance, statutory approvals, disclosures, internal controls and reporting responsibilities. Importantly, certain obligations may arise before listing, while others require advance preparation to ensure compliance immediately upon becoming a listed entity. The process begins before filing the Draft Red Herring Prospectus (DRHP), with a review of capital structure, shareholder arrangements, statutory approvals, managerial remuneration, corporate policies and compliance officer responsibilities. Following DRHP filing, companies should focus on Board and committee constitution, identification of material subsidiaries, related-party transactions, investor grievance redressal, website disclosures and employee benefit schemes. The subsequent stages require reconciliation of shareholding records, preparation of stock-exchange filings and implementation of insider trading controls under the SEBI (Prohibition of Insider Trading) Regulations, 2015. Particular attention is required for identifying designated persons, handling unpublished price sensitive information and maintaining a Structured Digital Database wherever applicable. Financial reporting systems must also be prepared for the first post-listing results under Regulation 33 of the SEBI LODR Regulations. Companies should additionally assess market-capitalisation-based obligations and requirements applicable to other listed securities. A stage-wise compliance tracker identifying regulatory provisions, applicability triggers, responsible personnel, deadlines and supporting documentation can help companies achieve a smooth transition from private ownership to the listed environment.

Introduction

An Initial Public Offering (IPO) is more than a capital-raising exercise. It marks a company’s transition from a privately held business to a listed entity governed by a wider regulatory framework. While preparation of the offer document and securing regulatory approvals remain central to the IPO process, an equally important aspect is ensuring that the company is ready to comply with securities laws from the applicable date.

Interestingly, not all securities law obligations begin on the listing date itself. certain requirements may arise during the IPO process itself, while others become applicable upon listing but require changes to corporate governance, internal controls and reporting systems well in advance.

The journey towards compliance readiness can therefore be divided into four stages.

The period preceding the filing of the Draft Red Herring Prospectus (DRHP) is the foundation of IPO readiness. At this stage, the company should identify existing compliance gaps, undertake necessary corporate restructuring and ensure that material statutory matters are appropriately addressed or disclosed.

Part I

Corporate Structure and Statutory Approvals

The company should review its capital structure, including outstanding convertible securities, employee stock options, shareholding classifications and dematerialisation requirements. Any proposed conversion into a public limited company, alteration of constitutional documents, capital restructuring or amendment to shareholders’ agreements should be evaluated to be aligned with listing compliances.

The review should also cover compliance of managerial remuneration under Section 197, including whether the remuneration arrangements are aligned with the limits and approval requirements prescribed under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations). Particular attention should be given to special rights available to investors under shareholders’ agreements, arrangements requiring modification or termination upon listing, and transactions requiring shareholder approval.

Corporate Policies and Disclosure Framework

The company should frame the policies and procedures required under the LODR Regulations, including the materiality policy under Regulation 30(4), document-preservation policy under Regulation 9 and archival arrangements under Regulation 30(8).

At the same time, the Board should identify and authorise key managerial personnel in accordance with Regulation 30(5) and establish an internal escalation mechanism for identifying material events, including developments at subsidiaries.

Compliance Officer and Reporting Responsibilities

The issuer should ensure compliance with Regulation 23(8) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations), concerning appointment of a compliance officer responsible for securities law compliance and investor grievance redressal.

The company should also ensure readiness for Regulation 6 of the LODR Regulations, including the applicable qualifications and responsibilities of the listed entity’s compliance officer. Company shall ensure that the compliance officer of listed entity is one level below the board of directors of listed company.

Part II

Governance Readiness Assessment

The company should undertake an initial assessment of the corporate governance requirements under the LODR Regulations. This should cover compliance with Board composition, independent directors, woman director requirements, committee constitution well before listing date.

The assessment should consider the exemptions under Regulation 15(2), including the paid-up capital and net-worth criteria under Regulation 15(2)(a), the separate treatment of SME-listed entities and any applicable exceptions.

Once the DRHP is filed, the focus shifts from identifying compliance gaps to completing the necessary governance changes and building the mechanisms required for a listed entity.

Identification of Material Subsidiaries

The company’s subsidiary structure should be reviewed to determine which entities may qualify as material subsidiaries under Regulation 16(1)(c) of the LODR Regulations, based on the prescribed turnover or net-worth threshold of 10%. The separate threshold of 20% under Regulation 24(1), relevant to the prescribed independent-director representation requirement, should also be evaluated.

Board and Committee Constitution

Based on the applicability assessment undertaken earlier, the company should complete the necessary appointments, reconstitute its Board and establish the applicable committees, including the Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee and Risk Management Committee. Appointment of chairperson for Board and committees as per the requirement of LODR regulations.

Identifying and finalizing the list of senior management professionals (i.e. functional heads, core management team, person one level below CEO/MD etc.).

The company should also review the composition and governance arrangements of its subsidiaries, including any independent-director representation required under Regulation 24 of the LODR Regulations.

Related-Party Transactions and Continuing Arrangements

Existing related-party transactions should be evaluated against Regulation 23 of the LODR Regulations. The company should identify arrangements that will continue after listing, assess materiality, and obtain applicable approvals in accordance with the relevant provisions and their effective dates.

Company should make a list of related parties as per the definitions of LODR; a list of related party transactions falling under the scope of the Companies act and LODR; a list of omnibus transactions and specific transactions to be prepared.

Investor Grievance Redressal

The company should establish appropriate grievance-handling mechanisms, including the designated investor grievance email address, complaint registers and coordination procedures with the Registrar and Transfer Agent (RTA). SCORES registration or authentication and SMART ODR enrolment should be completed in accordance with their respective applicability requirements and prescribed timelines.

Website and Stock-Exchange Filing Readiness

The company should ensure that its website is prepared for the disclosures prescribed under Regulation 46 of the LODR Regulations. Access to stock-exchange filing platforms, allocation of filing responsibilities and internal approval procedures should also be arranged.

Employee Benefit Schemes

Companies having pre-IPO employee benefit schemes should assess their treatment under Regulation 12 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021. This includes examining whether the schemes require ratification or other action after listing and identifying the applicable timelines.

Part III

Shareholding Pattern and Depository Reconciliation

Regulation 31(1)(a) of the LODR Regulations requires the shareholding pattern to be submitted one day prior to listing. Accordingly, the company should reconcile the post-allotment capital structure with RTA and depository records, including promoter and promoter-group classifications, public shareholding, dematerialised holdings, lock-in particulars and other prescribed disclosures.

Insider Trading and Information Controls

a) Since the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) extend to securities proposed to be listed, the company should assess its obligations concerning unpublished price sensitive information (UPSI) before entering the public-issue process.

A framework should be established for identifying UPSI, controlling access to confidential information and recording the sharing of UPSI, including through a Structured Digital Database (SDD) wherever Regulation 3(5) applies. The company should not defer the assessment of SDD applicability until listing, particularly where the stock exchange requires an SDD compliance declaration at the draft-offer-document stage. Company should establish SDD mechanism at this stage.

b) Preparation of list of Designated persons (DP) and Connected persons (CP) should be done. People in the organization should be made aware as to the compliance of PIT regulations and its implications.

c) Keeping the track of person holding any unpublished price sensitive information (UPSI) since, there may be UPSI in the Company between the prior to listing date and date on which shares are getting listed and becoming tradeable. And in this time gap, UPSI should be tracked.

d) Identifying either NSDL or CDSL as the designated depository of the Company and getting registered at issuer portal of depository and thereafter uploading the list DP in SDD.

PAN and Demat Account Mapping

Mechanism to collate the Promoter and promoter-group PAN and demat account details should be in place to support the system-driven disclosure framework under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. The company should also ensure readiness for applicable automated disclosures under the PIT Regulations.

Financial Reporting Readiness

While periodic financial reporting obligations under Regulation 33 of the LODR Regulations arise after listing, preparation should begin beforehand.

In particular, Regulation 33(3)(j) requires submission of financial results for the quarter or financial year immediately succeeding the period covered by the financial statements disclosed in the IPO offer document, within the prescribed timeline.

The company should identify the relevant reporting period, coordinate the audit or limited review, schedule Audit Committee and Board meetings and ensure that its statutory auditor satisfies the applicable peer-review requirements. Arrangements should also address the relevant SEBI requirements governing auditor resignation and continuity of financial reporting and terms/ cope of auditor should be aligned with the circular dated 18^th October 2019.

Other Applicable Regulatory Requirements

The company should identify obligations linked to market capitalisation under Regulation 3(2) of the LODR Regulations and assess when such provisions become applicable. Where the company also has listed debt securities or other specified instruments, additional obligations, including applicable Legal Entity Identifier (LEI) requirements, should be separately evaluated.

Before commencement of trading, the company should undertake a final readiness review covering adopted policies, Board authorisations, designated compliance personnel, investor grievance mechanisms, website disclosures, exchange filing arrangements and its first statutory reporting calendar.

Conclusion

An IPO changes not only a company’s shareholder base but also its compliance responsibilities. The regulatory transition begins before DRHP filing and continues through the public issue, allotment and eventual listing.

The distinction between requirements that apply before listing and those that require advance preparation for post-listing compliance is particularly important.

Compliance with LODR and other applicable listing regulations does not happen overnight. A stage-wise compliance tracker identifying the applicable provision, regulatory trigger, responsible person, deadline and evidence of completion can help ensure that, when the bell rings, the compliance framework is already in place.

Author: Ms. Radhika Varade [R&D Department]