Strategic Management and Corporate Finance · Raising of Funds from Equity and Procedural Aspects - Public Funding

Eligibility and Pre-Issue Requirements for a Public Issue

Updated 11 October 2026 · Fact-checked

Before a company offers equity shares to the public, it must meet the eligibility norms of the SEBI ICDR Regulations, pass the needed board and shareholder approvals, appoint SEBI-registered intermediaries such as a merchant banker and registrar, dematerialise its securities, and file an offer document. In the exam, you apply each condition to the facts given.

Understand Eligibility and Pre-Issue Requirements for Public Issue

A public issue means offering securities to the general public through an offer document. Because ordinary investors rely on the document, SEBI sets entry conditions through the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, called the ICDR Regulations. Companies Act, 2013 supplies the corporate law base.

Think of the pre-issue stage as three gates. Gate one is eligibility: is the company allowed to come to the market at all? Gate two is authority: have the board, shareholders and other bodies approved the issue? Gate three is machinery: have the intermediaries been appointed and the securities made ready for trading?

On eligibility, the ICDR Regulations for the main board lay down two routes: a track-record route based on net tangible assets, operating profit and net worth, and a route through the book building process where a stated share of the issue goes to qualified institutional buyers. They also bar the issuer if the company, its promoters or its directors are debarred by SEBI from the securities market, or are wilful defaulters or fraudulent borrowers, or are fugitive economic offenders. Check the current numeric limits in the ICDR text and the ICSI study material before the exam, as SEBI amends them.

On authority, a fresh issue of shares is a further issue of capital. Under section 62(1)(c) of the Companies Act, 2013, shares offered to any persons need a special resolution. Shares issued at a premium create a securities premium account under section 52, which can be used only for the purposes the section lists. The authorised capital must also be enough for the new shares, which may need an alteration of the memorandum.

On machinery, the company appoints a merchant banker (lead manager) registered with SEBI, a registrar to the issue, bankers, underwriters if needed, and others such as legal counsel and a monitoring agency where required. It also signs agreements with depositories so that the shares can be held in dematerialised form. The merchant banker conducts due diligence and files the draft offer document with SEBI.

Key rules to remember

Authority for offering shares to any persons: Special resolution + price fixed by registered valuer's report (where the issue is under section 62(1)(c)); Section 62(1)(c) allows an offer to any persons if authorised by a special resolution and the price is determined by a registered valuer's report, with compliance with Chapter III and prescribed conditions.
Rights offer timing: Offer open 15 to 30 days (or a lesser prescribed period); notice sent at least 3 days before the issue opens; Section 62(1)(a)(i) and 62(2). This applies when shares are offered to existing equity holders first; do not confuse it with a public issue timetable.
Securities premium: Securities premium account = aggregate premium received on shares issued; Section 52(1). Its use is limited to the purposes in section 52(2), such as bonus shares, writing off preliminary or issue expenses, premium on redemption, and buy-back under section 68.
Main board eligibility routes: Track-record route OR book-building route with a minimum QIB allocation, and no bar on issuer, promoters or directors; State the routes and the disqualifications in words. Quote exact numeric limits only from the current ICDR text you have studied.
Pre-issue checklist: Eligibility → approvals → intermediaries → demat arrangements → draft offer document to SEBI; Use this order to structure every answer.

How to solve Eligibility and Pre-Issue Requirements for Public Issue questions

Case questions ask whether a company can go public and what it must do first. Work from the facts to a conclusion using a fixed order.

1Read the facts and list the company details: type, profit record, net worth, promoters, directors, existing capital and any past issues.
2State the rule: the ICDR eligibility conditions for the relevant board and route, then the disqualifications.
3Test each fact against the rule. Say clearly whether each condition is met, not met, or cannot be decided.
4Check the approvals: board resolution, special resolution for the issue where needed, capital clause and articles, and other consents.
5List the intermediaries to appoint and what each does: merchant banker, registrar, bankers, underwriters, legal counsel.
6Add the machinery points: depository agreements, dematerialisation of existing securities, and filing the draft offer document through the merchant banker.
7Conclude with a firm answer and the action the company must take next.

Quickest way: Three-gate answer frame

When to use it: Use when time is short or the question just asks what a company must do before a public issue.

Write the heading Eligibility and give the routes and disqualifications in two or three lines.
Write the heading Authority and cite board approval and the special resolution under section 62(1)(c) where relevant.
Write the heading Machinery and list the intermediaries and demat steps.
Close with one line applying the facts and stating the conclusion.

Common mistakes in Eligibility and Pre-Issue Requirements for Public Issue

Applying the rights issue timeline of 15 to 30 days to a public issue.
Section 62 is read as one block and its sub-clauses are mixed up.
Fix: Remember that clause (a) covers offers to existing equity holders. A public issue is governed by the ICDR timetable and the offer document.
Writing exact eligibility figures from memory without checking.
Students memorise a number once and ignore later SEBI amendments.
Fix: Revise the figures from the latest ICDR text and the ICSI study material. If unsure, explain the test in words and say it is as prescribed.
Forgetting the disqualification tests on promoters and directors.
Students focus only on financial criteria.
Fix: Always add that debarment, wilful defaulter or fraudulent borrower status and fugitive economic offender status block the issue.
Naming a registrar or merchant banker without saying SEBI registration is needed.
The appointment is treated as a commercial choice.
Fix: State that the intermediary must hold valid SEBI registration and that the appointment is made through a written agreement.
Ignoring the need for a special resolution and valuer-based price in clause (c) cases.
Students remember only the shareholders' rights offer.
Fix: Cite section 62(1)(c): special resolution, and price determined by a registered valuer's report where that clause is used.
Leaving out dematerialisation and depository agreements.
They seem like post-issue steps.
Fix: Include them in the pre-issue list because the securities must be ready for demat trading.

Worked examples

Example 1

Sundaram Foods Ltd plans a public issue of equity shares. Its board has approved the issue but no shareholder approval has been taken, and no intermediary has been appointed. Advise the company on the pre-issue steps.

Show the solution

Rule: a public issue needs eligibility under the ICDR Regulations, proper authority and appointed intermediaries.
Eligibility: the company must check that it satisfies the track-record route or the book-building route, and that neither it, its promoters nor its directors are debarred, wilful defaulters, fraudulent borrowers or fugitive economic offenders.
Authority: the board resolution is not enough where the shares are offered to any persons under section 62(1)(c). A special resolution is needed, and the price must be determined by a registered valuer's report where that clause applies.
Capital: confirm the authorised capital is enough and the articles permit the issue. Any premium must go to the securities premium account under section 52(1).
Machinery: appoint a SEBI-registered merchant banker as lead manager, a registrar to the issue, bankers and, if required, underwriters. Sign agreements with depositories.
The merchant banker then does due diligence and files the draft offer document with SEBI.

Answer: Sundaram Foods must first confirm ICDR eligibility, then obtain a special resolution, appoint SEBI-registered intermediaries, arrange demat facilities, and file the draft offer document through the merchant banker.

Example 2

Explain the role of the merchant banker and the registrar in the pre-issue stage of an IPO and how the company appoints them.

Show the solution

Merchant banker: a SEBI-registered lead manager that manages the issue. It carries out due diligence, helps prepare the draft offer document, files it with SEBI and coordinates other intermediaries.
Registrar to the issue: a SEBI-registered entity that handles application records, allotment, refunds and credit of shares to demat accounts.
Appointment: the board approves the appointments and the company signs written agreements setting out duties, fees and responsibilities.
Check: before appointing, the company verifies that each intermediary holds valid SEBI registration and is not conflicted in the issue.

Answer: The company appoints a SEBI-registered merchant banker to manage the issue and file the draft offer document, and a SEBI-registered registrar to handle allotment and refunds. Both are appointed by board approval and written agreements.

Exam tips

Structure every answer as eligibility, authority and machinery. Examiners reward a clear frame.
Quote section 62(1)(c) accurately when the question mentions shares offered to any persons.
Use the facts in the question to give a firm yes or no on eligibility, not a general essay.
If you do not recall an exact ICDR figure, state the test in words rather than risk a wrong number.
Mention SEBI registration for every intermediary you name.

Practice questions from Raising of Funds from Equity and Procedural Aspects - Public Funding

Eligibility and Pre-Issue Requirements for Public Issue in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CS ExecutiveEligibility Norms for Public Issues

Eligibility and Pre-Issue Requirements for Public Issue: frequently asked questions

What are the main eligibility conditions for a main board IPO?

The company must satisfy either the track-record route or the book-building route with a prescribed institutional allocation. It must also not be barred by SEBI, and its promoters and directors must not be wilful defaulters, fraudulent borrowers or fugitive economic offenders. Check current figures in the ICDR text.

Is a special resolution needed for an IPO?

A fresh issue of shares to any persons needs authority by special resolution under section 62(1)(c) of the Companies Act, 2013. The price must be determined by a registered valuer's report where that clause is used. Your answer should also mention the board resolution.

Who appoints the merchant banker and registrar?

The company appoints them, with board approval, through written agreements. Both must hold valid SEBI registration. The merchant banker leads due diligence and filings, and the registrar manages allotment and refunds.

Where does the premium on IPO shares go?

Under section 52(1), a sum equal to the premium received is transferred to the securities premium account. Section 52(2) lists the purposes for which it may be applied, such as bonus shares and writing off issue expenses.