# Offer for Sale by Existing Members (Section 28)

## Concept Setup

Not every "prospectus" comes from the company itself. Sometimes existing members (shareholders) want to sell their holdings to the public. To protect investors, the law treats such an offer-for-sale (OFS) document as if it were a prospectus issued by the company.

This is closely linked to the idea of a Deemed Prospectus under Section 25 — where shares are allotted to an intermediary who then offers them to the public.

## Mechanics of Section 28

Step 1 — Consultation with Board

Members wishing to offer shares to the public must do so in consultation with the Board of Directors of the company. They cannot independently launch an OFS using company machinery.

Step 2 — Document is deemed a prospectus

The document by which the public offer of sale is made is, for all purposes, deemed to be a prospectus issued by the company.

All laws and rules relating to contents of prospectus apply.
Liability for mis-statements / omissions applies as if the company itself issued the prospectus.

Step 3 — Authorisation & reimbursement

The members (individuals, bodies corporate, or both) whose shares are being offered must collectively authorise the company to act on their behalf, and must reimburse the company for all expenses incurred.

## Exceptions — What does NOT apply to an OFS under Section 28(4)

Although Chapter III generally applies, the following provisions are carved out because they are inapplicable to an offer for sale (shares already exist; no fresh issue):

#	Provision Not Applicable	Reason
(a)	Minimum subscription	No fresh capital being raised by company
(b)	Minimum application value	Same logic
(c)	Statement by Board on utilisation of money	Money goes to selling members, not company
(d)	Any other provision that the offeror cannot reasonably comply with (with justification)	Practical impossibility

## Visual: When is it a Deemed Prospectus?

```

Shares allotted to Allottee

│

▼

Did allottee sell to public within 6 months? ── No ──► Not a deemed prospectus

│ Yes

▼

Did allottee pay FULL consideration before offer? ── Yes ──► Not a deemed prospectus

│ No

▼

DEEMED PROSPECTUS

```

## Key Takeaways

OFS document = deemed prospectus issued by the company.
Liability provisions of prospectus law attach fully.
Four carve-outs in Section 28(4) reflect the substance: no new money is raised by the company.

Worked example

### Example 1

Example 1 — Identifying an OFS as deemed prospectus

ABC Ltd. has three promoter-shareholders holding 60% of its shares. They decide to offload 20% of their personal holdings to the public. They consult the Board, prepare an offer document, and float the OFS.

Treatment: The OFS document is deemed to be a prospectus issued by ABC Ltd. itself. ABC Ltd. and the selling members are jointly responsible for compliance with prospectus rules, but ABC Ltd. need not comply with the minimum subscription clause because no fresh capital is being raised.

### Example 2

Example 2 — Reimbursement obligation

In the above example, ABC Ltd. spends ₹50 lakh on legal, merchant banking, and printing fees for the OFS. Under Section 28(3), the selling members must reimburse the company this ₹50 lakh; the company cannot bear it from its own treasury because the benefit of sale accrues to the members, not the company.

⚠️ Common exam mistakes

Confusing Section 28 (OFS by existing members) with Section 25 (deemed prospectus on allotment to intermediary) — they are related but distinct routes to 'deemed prospectus' treatment.
Assuming the company can launch an OFS for members on its own — the members must authorise the company collectively and reimburse expenses.
Forgetting the four carve-outs in Section 28(4); students often apply minimum-subscription rules to an OFS, which is incorrect.
Believing the company escapes prospectus liability because it is members selling — Section 28(2) expressly equates the OFS document to a company-issued prospectus.

Bare-Act text Section 28 · Companies Act, 2013 · click to expand

Section 28: Offer of Sale of Shares by Certain Members of Company. (1) Where certain members of a company propose, in consultation with the Board of directors to offer, in accordance with the provisions of any law for the time being in force, whole or part of their holding of shares to the public, they may do so in accordance with such procedure as may be prescribed. (2) Any document by which the offer of sale to the public is made shall, for all purposes, be deemed to be a prospectus issued by the company and all laws and rules made thereunder as to the contents of the prospectus and as to liability in respect of mis-statements in and omission from prospectus or otherwise relating to prospectus shall apply as if this is a prospectus issued by the company. (3) The members, whether individuals or bodies corporate or both, whose shares are proposed to be offered to the public, shall collectively authorise the company, whose shares are offered for sale to the public, to take all actions in respect of offer of sale for and on their behalf and they shall reimburse the company all expenses incurred by it on this matter.

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Offer of Sale of Shares by Certain Members of Company (Section 28) — Deemed Prospectus by OFS

Worked example

⚠️ Common exam mistakes