# Issue of Securities - Two Categories of Companies

Under the Companies Act, 2013, public and private companies have different routes to raise capital.

## A. Issue of Securities by Public Companies

Four permitted modes:

### 1. Public Offer (through issue of Prospectus) - only for public companies

Includes:

Initial Public Offer (IPO) — first time issue to public
Further Public Offer (FPO) — subsequent public issue
Offer for Sale (OFS) — existing shareholders sell their stake to public through prospectus

Governed by Sections 23 to 41

### 2. Private Placement (Section 42)

Offer to a select group of investors (max 200 in a financial year, excluding QIBs and ESOP employees).

### 3. Rights Issue

Offer to existing shareholders in proportion to their holdings.

### 4. Bonus Issue

Capitalisation of reserves; free shares to existing shareholders.

## B. Issue of Securities by Private Companies

Only three modes (CANNOT issue prospectus to public):

1. Private Placement (Section 42)

2. Rights Issue

3. Bonus Issue

> All these must comply with the Companies Act, 2013, and (for listed companies) the SEBI Act, 1992.

## Side-by-Side Summary

Mode	Public Company	Private Company
Public offer (prospectus)	Yes	No
Private placement	Yes	Yes
Rights issue	Yes	Yes
Bonus issue	Yes	Yes

## Regulatory Framework

Public offer + listed companies → SEBI Act, 1992 plus Companies Act
Other modes → Companies Act provisions

## Memory Hook

Private companies can do everything EXCEPT public offers.

Worked example

### Example 1

Example: Sun Ltd (public unlisted) wants to raise ₹500 crore. Options available: IPO via prospectus, private placement, rights issue, or bonus issue.

### Example 2

Example: Moon Pvt Ltd wants to raise capital. It CANNOT issue a prospectus. Options: rights issue to existing shareholders, bonus issue, or private placement under Sec 42 (max 200 persons in a FY).

⚠️ Common exam mistakes

Listing 'public offer' as an option for private companies — strictly prohibited.
Forgetting that OFS by existing shareholders also requires a prospectus.
Mixing the maximum 200-person limit with rights/bonus issues — that limit applies only to private placement.

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

Section 23: A public company may issue securities to the public through prospectus by complying with the provisions of this Part; or through private placement by complying with the provisions of Part II of this Chapter; or through a rights issue or a bonus issue in accordance with the provisions of this Act. A private company may issue securities by way of rights issue or bonus issue in accordance with the provisions of this Act; or through private placement by complying with the provisions of Part II of this Chapter.

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Modes of Issue of Securities - Public vs Private Companies

Worked example

⚠️ Common exam mistakes