Section 23: Public Offer and Private Placement of Securities
Section 23 of the Companies Act, 2013 specifies the lawful routes by which public and private companies may issue securities in India. It distinguishes a public offer through a prospectus from private placement, rights issues and bonus issues, and also provides for certain overseas listings by eligible public companies.
Meaning of public offer and private placement
The Explanation to Section 23 states that a public offer includes an initial public offer (IPO), a further public offer (FPO), or an offer for sale of securities to the public by an existing shareholder, through the issue of a prospectus. A private placement, as described in the Explanation to Section 42, is an offer or invitation to subscribe to securities to a select group of persons identified by the board, other than a public offer, subject to prescribed conditions.
Section 23(1): How a public company may issue securities
A public company may use any of the following methods, subject to the relevant legal requirements:
- Section 23(1)(a) - Public offer: Issue securities to the public through a prospectus in compliance with Part I of Chapter III of the Companies Act and applicable SEBI requirements.
- Section 23(1)(b) - Private placement: Offer securities to identified persons by complying with Part II of Chapter III, especially Section 42 and the applicable rules.
- Section 23(1)(c) - Rights issue or bonus issue: Issue securities in accordance with the Act, including Section 62 for further share capital and Section 63 for bonus shares. A listed company or a company proposing listing must also comply with the SEBI Act, 1992 and relevant regulations.
Section 23(2): How a private company may issue securities
A private company may issue securities by rights issue or bonus issue under Section 23(2)(a), or by private placement under Section 23(2)(b), in accordance with Part II of Chapter III. Section 23 does not authorize a private company to make a public offer through a prospectus.
Section 23(3) and (4): Listing outside India
Section 23(3), inserted by the Companies (Amendment) Act, 2020 and brought into force on 30 October 2023, permits prescribed classes of public companies to issue prescribed classes of securities for listing on permitted stock exchanges in permissible foreign jurisdictions or other prescribed jurisdictions. It does not grant unrestricted permission to every company or for every foreign exchange.
Section 23(4) empowers the Central Government, by notification, to exempt eligible classes of public companies covered by subsection (3) from specified provisions of Chapter III, Chapter IV and Sections 89, 90 or 127. Such notifications must be laid before both Houses of Parliament. The Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024 and applicable foreign exchange and securities regulations govern the relevant framework.
Practical compliance requirements
Public issue
For a public issue, the issuer should evaluate eligibility and approvals, prepare the prescribed offer document or prospectus, meet disclosure requirements, and comply with allotment, dematerialisation and stock-exchange requirements as applicable. Relevant provisions include Sections 24 to 40 and the SEBI regulations, particularly the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended.
Private placement
Under Section 42 and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, a private placement generally involves identifying proposed offerees, obtaining necessary corporate approvals, issuing a serially numbered offer-cum-application letter in Form PAS-4, receiving subscription money through permitted banking channels, completing allotment within statutory timelines and filing the return of allotment in Form PAS-3. The prescribed limit is generally 200 persons per kind of security in a financial year, excluding qualified institutional buyers and eligible employees under an ESOP. Exceptions and specific rules must be checked before proceeding.
Rights and bonus issues
A rights issue generally follows Section 62(1)(a), including an offer to existing equity shareholders in proportion to their holdings, subject to applicable exceptions and procedures. A bonus issue must comply with Section 63, including conditions concerning eligible reserves, authorisation and other restrictions. Listed entities must additionally follow applicable SEBI rules.
Comparison of permitted methods
| Method | Public company | Private company | Main provisions |
|---|---|---|---|
| Public offer through prospectus | Permitted | Not permitted | Sections 23(1)(a), 26 and related provisions |
| Private placement | Permitted | Permitted | Sections 23 and 42; Rule 14 |
| Rights issue | Permitted | Permitted | Sections 23 and 62 |
| Bonus issue | Permitted | Permitted | Sections 23 and 63 |
| Overseas listing under prescribed framework | Eligible classes only | Not directly under Section 23(3) | Section 23(3)-(4); 2024 Rules |
Frequently asked questions
Can a private limited company invite the general public to subscribe?
No. Section 23(2) permits rights or bonus issues and compliant private placements, not a public offer through a prospectus.
Does Section 23 itself set a penalty?
Section 23 classifies permitted methods; contraventions may attract consequences under the specific governing provisions, including Section 42 for non-compliant private placements, and applicable securities law.
Can any Indian public company list shares abroad?
No. Section 23(3) applies only to prescribed classes of public companies and securities, subject to the notified listing framework and applicable foreign exchange requirements.
Official legislation and regulatory resources
- Ministry of Corporate Affairs - Companies Act, 2013
- Government of India - Section 23 text including subsections (3) and (4)
- Ministry of Corporate Affairs - notifications, rules and filings
- SEBI - current securities regulations
- India Code - legislation and amendments
This article describes the statutory framework as reviewed on 7 October 2026. Specific issues may require additional sectoral, listing, valuation, foreign exchange or regulatory approvals.