Section 28 - Offer for Sale of Shares by Certain Members
# Section 28 - Offer for Sale of Shares by Certain Members
## Concept
Normally, a public offer is made by the company itself when it issues fresh shares. Section 28 deals with a different situation - where existing members want to offload their existing holdings to the public through the company's machinery. The company acts as a vehicle; the shares being sold are not new, they already belong to members. The document used is deemed to be a prospectus so that the protections of Chapter III apply.
## When Section 28 Applies
Where certain members (individuals or body corporate) of a company, in consultation with the Board of Directors, propose to offer whole or part of their holding of shares to the public.
## Procedural Requirements
1. Authorisation by members: Members proposing the sale must collectively authorise the company to take necessary action for the Offer for Sale (OFS) on their behalf.
2. Reimbursement of expenses: The members are required to reimburse the company for all expenses incurred by it in connection with the offer.
3. OFS Document = Deemed Prospectus: The document by which the offer of sale to the public is made is deemed to be a prospectus issued by the company. All laws and rules as to contents of a prospectus and liability for misstatements apply.
## Special Resolution by Postal Ballot
Where the situation requires a special resolution from members, it may be passed by postal ballot. The notice of the proposed SR must contain details such as original objects, total money sought etc.
## Advertisement / Notice
Where required by the rules, an advertisement / notice in Form PAS-1 must be issued before making the offer.
Worked example
### Example 1
Example 1 - Identifying an OFS
Mr. X and Mr. Y, holding 30% shares of ABC Ltd. (a public company), wish to exit. They request ABC Ltd. to sell their shares to the public. In consultation with the Board, the company facilitates this through a single offer document.
Treatment: This is an Offer for Sale under Section 28. The document used is deemed to be a prospectus, so Sections 26, 34, 35 (misstatement liability) apply. X and Y must collectively authorise ABC Ltd. and reimburse it for all related expenses.
### Example 2
Example 2 - Reimbursement of expenses
ABC Ltd. spends Rs. 50 lakh on legal fees, printing and SEBI compliance for an OFS by its promoter shareholders.
Treatment: The promoter shareholders whose shares were offered must reimburse ABC Ltd. the entire Rs. 50 lakh - the company cannot bear costs arising from a sale of someone else's holdings.
⚠️ Common exam mistakes
Treating the OFS document as merely a private contract - it is a deemed prospectus, so misstatement liability applies.
Assuming the company can bear OFS expenses - the selling members must reimburse the company.
Confusing OFS (sale of existing shares by members) with a fresh issue by the company under Section 23.
Forgetting that selling members must collectively authorise the company - individual authorisations are not sufficient.
Bare-Act text Section 28 · Companies Act, 2013 · click to expand
Section 28(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.
Section 28(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 it is a prospectus issued by the company.
Section 28(3): The members, whether individuals or body 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.