# Issue of Securities by Public and Private Companies (Section 23)

## A. Modes Available to a Public Company [Sec 23(1)]

A public company may issue securities through:

1. Prospectus (public offer)

2. Private placement

3. Rights issue or bonus issue — as per the Act and (for listed cos.) SEBI Regulations

## B. Modes Available to a Private Company [Sec 23(2)]

A private company is restricted to:

1. Rights issue or bonus issue under the Act

2. Private placement following the relevant provisions

Note: Private companies CANNOT make a public offer — that is the essence of being 'private'.

## C. Prescribed Companies — Foreign Listing [Sec 23(3)]

Certain public companies may issue securities for listing on permitted foreign stock exchanges or other prescribed jurisdictions.

## D. CG Power to Exempt [Sec 23(4)]

The Central Government may exempt public companies from complying with:

Chapter III (Prospectus and Allotment of Securities)
Chapter IV (Share Capital and Debentures)
Sections 89, 90, or 127 (beneficial interests, registers, dividend distribution)

## E. SEBI as the Regulator [Sec 24]

SEBI regulates:

Issue and transfer of securities
Non-payment of dividend

For: listed companies OR those intending to list on recognized Indian stock exchanges.

Other matters (allotment, redemption, etc.) are managed by CG / Tribunal / ROC.

## F. Definitions to Master

### Public Offer Includes:

IPO (Initial Public Offer)
FPO (Further Public Offer)
OFS (Offer for Sale) — by existing shareholder through a prospectus

### Securities [Sec 2(81)] — As per SCRA, 1956

Shares, stocks, bonds, debentures, other marketable securities
Derivatives
Units from collective investment schemes
Security receipts under SARFAESI Act, 2002
Mutual fund units
Certificates/instruments by special purpose entities (beneficial interests)
Government securities
Other instruments declared as securities by the CG
Rights or interests in securities (e.g., renunciations)

EXCLUSION: Instruments offering combined insurance + investment benefits (e.g., unit-linked insurance policies) are NOT securities.

### Listed Company

A company whose securities are listed on a recognized stock exchange. Exceptions (i.e., NOT deemed listed):

Category	Details
Public companies	Equity not listed BUT have listed only NCDs/non-convertible redeemable pref shares on private placement basis
Private companies	Have listed NCDs on private placement basis on Indian stock exchange
Foreign listings	Equity listed only on foreign exchanges as per Sec 23(3)

## Quick Comparison

Mode	Public Co.	Private Co.
Public offer (prospectus)	✓	✗
Private placement	✓	✓
Rights issue	✓	✓
Bonus issue	✓	✓

Worked example

### Example 1

Example 1: PQR Pvt Ltd wishes to raise capital from the general public through a prospectus. Is this permitted?

Answer: No. Under Section 23(2), private companies are restricted to rights issue, bonus issue, and private placement. They CANNOT issue a public offer. The very nature of a private company prohibits public solicitation.

### Example 2

Example 2: XYZ Ltd, an unlisted public company, issues non-convertible debentures via private placement and gets them listed. Is XYZ a 'listed company'?

Answer: No. As per the exceptions, a public company whose equity is not listed but only NCDs are listed (issued on private placement basis) is NOT treated as a listed company.

### Example 3

Example 3: An investor purchases units of a Unit Linked Insurance Plan (ULIP). Are these 'securities' under the Companies Act?

Answer: No. Instruments providing combined insurance and investment benefits (like ULIPs) are specifically excluded from the definition of 'securities' under Section 2(81).

⚠️ Common exam mistakes

Thinking private companies can do 'limited' public offers — they CANNOT make any public offer.
Including ULIPs and pure insurance products as 'securities' — they are excluded.
Forgetting that 'public offer' specifically includes IPO, FPO, AND OFS through prospectus.
Assuming a company with any listed instrument is a 'listed company' — the exceptions for NCDs-only and foreign-only listings are critical.
Mixing up SEBI's jurisdiction (issue + transfer + dividend non-payment) with CG/Tribunal/ROC jurisdiction (other matters).

Bare-Act text Section 23 · Companies Act, 2013 · click to expand

23. (1) A public company may issue securities—(a) to public through prospectus (herein referred to as "public offer") by complying with the provisions of this Part; or (b) through private placement by complying with the provisions of Part II of this Chapter; or (c) through a rights issue or a bonus issue in accordance with the provisions of this Act and in case of a listed company or a company which intends to get its securities listed also with the provisions of the Securities and Exchange Board of India Act, 1992 and the rules and regulations made thereunder. (2) A private company may issue securities—(a) by way of rights issue or bonus issue in accordance with the provisions of this Act; or (b) through private placement by complying with the provisions of Part II of this Chapter.

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