IPO-Ready? Why Exchanges Care Deeply About Your 'Chain Of Agreements'

Have you been or heard from an IPO aspirant encountering unexpected delays or rejections during SEBI scrutiny on their path to listing? Despite planning initial public offerings having collected three years of audited financials, compliance certifications, board restructuring, and the draft red herring prospectus? The delays are not because their financials are weak, but because they cannot adequately demonstrate how their revenue is actually generated. The culprit? A missing or inadequate "chain of agreements" that documents the complete business transaction flow.

They hire investment bankers, appoint merchant bankers, and prepare detailed disclosures about their business model and risk factors.Yet, stock exchanges no longer focus exclusively on how much revenue a company reports. They now scrutinize how that revenue is generated, verified, and substantiated through formal documentation. A company with strong growth metrics but informal documentation practices may find itself struggling to satisfy exchange queries, while competitors with lower revenue but robust documentation sail through the listing process.

Understanding the Chain of Agreements

The "chain of agreements" refers to the complete paper trail that documents your business transactions from initial customer engagement through final delivery and payment. This encompasses far more than your standard master service agreements or terms and conditions posted on your website.

For a typical business, this chain includes vendor contracts that establish your supply relationships and pricing terms, purchase orders that confirm specific transaction details, customer order forms that document demand, delivery documentation that proves fulfillment, and invoicing records that tie everything together. For companies with recurring revenue models, this extends to renewal agreements, termination clauses, service level agreements, and payment terms that demonstrate business sustainability.

Group companies face additional complexity. Inter-company agreements, transfer pricing documentation, cost allocation frameworks, and shared services arrangements all become part of the chain that exchanges examine to understand the true nature and arms-length character of reported revenues.

The fundamental question exchanges are asking is straightforward: can you prove, through documented agreements and transaction records, that your reported revenue represents real, sustainable business activity conducted on commercial terms?

Why Informal Documentation Practices Create Red Flags

Many growing companies operate efficiently through informal processes. A long-standing customer places orders via WhatsApp or email. Verbal agreements with suppliers are confirmed through simple purchase orders without underlying contracts. Pricing negotiations happen through phone calls, with terms captured only in invoice descriptions. For years, this approach works perfectly well for day-to-day operations.

Then the company decides to pursue an IPO. Suddenly, these efficient informal practices become existential problems.

Exchanges raise immediate concerns when they encounter informal documentation. Oral orders or informal channels orders without supporting agreements create questions about pricing authority, payment terms, and contract enforceability. Email confirmations without master service agreements make it difficult to verify the commercial reasonableness of transactions. Verbal understandings documented only through payment records raise questions about whether reported revenue reflects genuine third-party transactions or potentially accommodative arrangements.

Consider a technology services company that grew rapidly through strong customer relationships and referral business. For five years, they operated primarily through email order confirmations and informal understandings with clients. When they initiated their IPO process, exchange queries focused extensively on their documentation gaps. The exchanges wanted to see formal contracts, renewal terms, pricing frameworks, and service specifications. The company was forced to retrospectively formalise relationships with major customers—a time-consuming process that delayed their listing by nearly nine months and created awkward conversations with clients who had never previously been asked to sign formal agreements.

In another case, a manufacturing company with significant inter-group transactions couldn't adequately document the commercial rationale for pricing differences between group and non-group customers. The absence of formal transfer pricing studies and documented decision-making around inter-company terms led to repeated exchange queries and ultimately contributed to their decision to withdraw their IPO application.

What Exchanges Are Actually Looking For

Stock exchanges scrutinize documentation to assess business maturity, revenue quality, and sustainability. They want to see that companies have graduated from informal startup practices to institutional-grade business processes appropriate for public market participation.

Specifically, exchanges examine whether your business relationships are documented through formal agreements that would be enforceable in court. They assess whether your pricing is established through documented frameworks rather than ad-hoc decisions. They verify that revenue recognition is supported by clear delivery milestones and acceptance criteria. They check whether payment terms are commercially standard and consistently applied.

For recurring revenue businesses, exchanges pay particular attention to renewal rates, termination clauses, and forward visibility. Can you demonstrate through documentation that customers have committed to future purchases? Are your contracts structured to provide predictable revenue streams? Do your agreements include provisions that protect business continuity?

Exchanges also scrutinize concentration risk through the lens of documentation. If your top five customers represent 60% of revenue but operate under informal arrangements, this raises concerns about sustainability. Conversely, if those relationships are governed by multi-year contracts with clear renewal terms and termination protections, the concentration becomes more acceptable.

Building Documentation Infrastructure Before You Need It

The time to build robust documentation practices is years before you contemplate an IPO, not months before you file your draft prospectus. Companies that maintain strong documentation from early stages find the IPO process significantly smoother.

Start by formalising all material customer relationships through master service agreements that establish the framework for ongoing business. These agreements should clearly specify pricing mechanisms, payment terms, service levels, intellectual property rights, confidentiality obligations, and termination provisions. For transaction-based businesses, ensure that individual purchase orders or statements of work reference and incorporate these master terms.

On the vendor side, establish formal supply agreements with key suppliers that document pricing, quality standards, delivery terms, and liability provisions. Even if you've worked with a supplier for years on informal terms, formalising the relationship through documentation protects both parties and demonstrates business maturity to exchanges.

For companies with recurring revenue, implement systematic contract management practices that track renewal dates, escalation terms, termination notices, and contract values. Exchanges want to see that you manage these relationships proactively, not reactively.

Group companies should implement formal inter-company agreements that document shared services, cost allocations, transfer pricing, and intellectual property licensing. These agreements should be supported by transfer pricing studies that demonstrate arms-length commercial terms. Don't wait until IPO due diligence to discover that your inter-group transactions lack proper documentation.

Implement systems that create clear audit trails linking contracts to orders, orders to delivery documentation, delivery to invoicing, and invoicing to payment. Modern ERP and contract management systems can automate much of this documentation, but even simpler systems are valuable if they create verifiable paper trails.

Addressing Historical Documentation Gaps

If you're contemplating an IPO and realise your historical documentation is inadequate, you can take steps to remedy the situation, though this requires time and careful execution.

Begin by conducting a comprehensive documentation audit that identifies gaps in your transaction documentation. Prioritise addressing gaps for material customers, key suppliers, and significant transaction categories. Focus on relationships that represent substantial revenue or that demonstrate important business model characteristics.

For ongoing relationships, approach customers and suppliers about formalising arrangements through master agreements that govern future transactions while acknowledging the historical relationship. Most sophisticated counterparties understand the need for formal documentation and will cooperate, particularly if you explain that you're implementing more rigorous business practices in contemplation of becoming a public company.

For historical transactions that cannot be documented retroactively through formal agreements, prepare detailed narratives and supporting documentation such as email confirmations, delivery records, payment histories—that demonstrate the genuine commercial nature of the transactions. While this is less ideal than formal contracts, comprehensive supporting documentation can satisfy exchange concerns if properly organized and presented.

Engage experienced securities counsel early in this process. They can advise on what documentation exchanges are likely to require based on your specific business model and industry, and can help you prioritize remediation efforts to address the most material concerns first.

The Strategic Advantage of Strong Documentation

Companies with robust documentation practices satisfy exchange requirements more easily and also realise broader strategic benefits. Strong documentation reduces customer and vendor disputes, protects intellectual property, facilitates due diligence in fundraising, and creates institutional knowledge that survives personnel turnover.

During IPO due diligence, companies with comprehensive documentation respond to exchange queries quickly and completely. This accelerates the listing timeline, reduces professional fees for repeated submissions and clarifications, and demonstrates business maturity to institutional investors evaluating the offering.

Perhaps most importantly, the discipline of formalising business relationships and maintaining documented transaction trails forces companies to think systematically about their business model, pricing strategy, and risk management—precisely the kind of institutional thinking that characterizes successful public companies.

For companies with IPO aspirations, the message is clear: your chain of agreements isn't just a compliance requirement. It's evidence of business maturity, a foundation for investor confidence, and increasingly, a prerequisite for public market access. The question isn't whether to build robust documentation practices, but whether you'll do so proactively on your timeline, or reactively under the pressure of exchange scrutiny.

The companies that recognise this reality early and invest in proper documentation infrastructure are the ones that navigate the IPO process most successfully and that build the foundation for long-term success in the public markets.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.