# Modes of Issue of Securities

A company issues securities to raise capital. The mode of issue depends on whether the company is public or private.

## Issue of Securities by a PUBLIC Company

### (a) Public Offer (through issue of prospectus)

Governance: Sections 23 to 41

Three sub-types:

1. Initial Public Offer (IPO) — first time the company offers shares to the public

2. Further Public Offer (FPO) — subsequent public offers after the IPO

3. Offer for Sale (OFS) — an existing shareholder offers their shares to the public through the company's prospectus

### (b) Private Placement

Governance: Section 42

Offer to a select group of persons (not exceeding 200 in a financial year, excluding QIBs and ESOPs).

### (c) Rights Issue

Offer to existing shareholders in proportion to their existing holding.

### (d) Bonus Issue

Issue of free shares to existing shareholders out of accumulated profits/reserves.

Applicable provisions: Companies Act and SEBI Act, 1992 for listed companies.

## Issue of Securities by a PRIVATE Company

A private company cannot make a public offer (this is the very definition of a private company).

It can issue through:

### (a) Private Placement (Section 42)

### (b) Rights Issue

### (c) Bonus Issue

Applicable provisions: Companies Act (SEBI does not regulate unlisted private companies).

## Definition of "Securities" — Section 2(81)

The Act adopts the definition from Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (SCRA).

### "Securities" INCLUDES:

(a) Marketable instruments of an incorporated company / body corporate:

Shares, scripts, stocks
Bonds, debentures, debenture stock
Other marketable securities of a like nature

(i) Derivatives

(ii) Units / instruments of collective investment schemes

(iii) Security receipts (as defined under SARFAESI Act, 2002)

(iv) Units / instruments under mutual fund schemes

(v) Exclusion — securities do NOT include unit-linked insurance policies (ULIPs) or any instrument providing combined life-risk + investment benefit issued by an insurer (these are regulated under the Insurance Act, 1938)

(vi) Securitisation instruments — certificates issued to investors by a special purpose distinct entity, acknowledging beneficial interest in debt/receivables (including mortgage debt)

(b) Government securities, and any other instruments declared as securities by the Central Government.

## Overseas Direct Listing vs. ADRs / GDRs

A direct overseas listing allows a domestic company to list directly on foreign stock exchanges without an intermediary.

Contrast with ADRs / GDRs:

In ADR/GDR, the Indian company gives its shares to a foreign depository bank, which issues receipts to foreign investors. There is an intermediary.
In direct listing, the Indian company offers its shares directly in foreign markets.

Advantages of direct listing:

Excludes intermediaries
Decreases overall transaction cost
Increases transparency

## Regulation of Issue and Transfer (Section 24)

SEBI administers Chapter III and IV provisions for matters relating to: issue and transfer of securities, and non-payment of dividend — for listed companies or companies that intend to list.
Central Government / Tribunal / Registrar administer all other matters under the Companies Act (including prospectus matters, return of allotment, redemption of preference shares).

Worked example

### Example 1

Example 1 — Modes available:

ABC Pvt Ltd wants to raise ₹10 crore. Options available: Private Placement (Section 42), Rights Issue, or Bonus Issue. It cannot make an IPO/FPO — those are exclusive to public companies.

### Example 2

Example 2 — Offer for Sale:

Mr. X holds 30% in XYZ Ltd (unlisted). XYZ Ltd is going public. Mr. X can sell his existing shares to the public through the IPO prospectus — this is an Offer for Sale (OFS).

### Example 3

Example 3 — Securities Exclusion:

A ULIP issued by LIC is NOT a security under Section 2(81) because it combines life risk + investment. It is regulated under the Insurance Act.

### Example 4

Example 4 — Section 24 jurisdiction:

A listed company fails to pay dividend on time — SEBI administers the issue (not ROC). But if the same company wants to redeem preference shares, the Registrar handles it.

⚠️ Common exam mistakes

Thinking a private company can make a public offer — it cannot, by definition.
Including ULIPs and life-insurance-cum-investment products as 'securities' — they are explicitly excluded.
Confusing OFS (Offer For Sale by existing shareholders) with FPO (further issue by the company).
Thinking SEBI regulates ALL companies — SEBI's jurisdiction is for listed companies (or intending to list).
Confusing direct overseas listing with ADRs — direct listing has no intermediary depository bank.
Forgetting that the definition of 'securities' under Section 2(81) borrows from SCRA, 1956.

Bare-Act text Sections 2(81), 23-42, Section 24 · Companies Act, 2013 read with Securities Contracts (Regulation) Act, 1956 · click to expand

Section 2(81): 'securities' means the securities as defined in clause (h) of Section 2 of the Securities Contracts (Regulation) Act, 1956. Section 24: Power of Securities and Exchange Board to regulate issue and transfer of securities, etc.

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Modes of Issue of Securities by Public and Private Companies

Worked example

⚠️ Common exam mistakes