Chapter III - Prospectus and Allotment of Securities
Section 23
Section 23: how public and private companies may issue securities
Section 23 sets out the routes through which a public company and a private company may issue securities, and since 30 October 2023 allows prescribed public companies to list prescribed securities on permitted foreign exchanges.
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This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(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 (15 of 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.
(3) Such class of public companies may issue such class of securities for the purposes of listing on permitted stock exchanges in permissible foreign jurisdictions or such other jurisdictions, as may be prescribed.
(4) The Central Government may, by notification, exempt any class or classes of public companies referred to in sub-section (3) from any of the provisions of this Chapter, Chapter IV, section 89, section 90 or section 127 and a copy of every such notification shall, as soon as may be after it is issued, be laid before both Houses of Parliament.
Explanation.—For the purposes of this Chapter, "public offer" includes initial public offer or further public offer of securities to the public by a company, or an offer for sale of securities to the public by an existing shareholder, through issue of a prospectus.
Introduction
A public company may issue securities through a public offer under Part I of Chapter III, a private placement under Part II, or a rights or bonus issue. A private company may use only a rights or bonus issue or a private placement; the public-offer route is not listed for it.
Sub-sections (3) and (4) were inserted by section 5 of the Companies (Amendment) Act, 2020. The India Code consolidated text records them as effective from 30 October 2023. The classes of companies, securities and jurisdictions are left to rules, and the Central Government may grant exemptions by notification.
Key takeaways
Public company routes
Public offer through a prospectus, private placement, or a rights or bonus issue. For a rights or bonus issue, a listed company or one intending to list must also follow the SEBI Act, 1992 and the rules and regulations made under it.
Private company routes
Rights or bonus issue under the Act, or private placement under Part II of Chapter III.
Foreign listing
Only the prescribed class of public companies may issue the prescribed class of securities for listing on permitted exchanges in permissible foreign jurisdictions.
Identify the issuer type and route
Start by confirming whether the issuer is a public or a private company. Section 23(1) gives a public company three routes, and section 23(2) gives a private company two. The Explanation defines "public offer" to include an initial public offer, a further public offer and an offer for sale by an existing shareholder, each made through a prospectus.
Follow the procedure for the chosen route
A public offer follows Part I of Chapter III (prospectus, allotment and stock-exchange provisions). A private placement follows Part II (section 42). Rights and bonus issues follow the provisions of the Act that govern them. Under section 23(1)(c), a listed company, or one that intends to list, must also comply with the SEBI Act, 1992 and the rules and regulations made under it for a rights or bonus issue.
Foreign listing under sub-sections (3) and (4)
Sub-section (3) applies only to the class of public companies, class of securities and jurisdictions that are prescribed. Sub-section (4) allows the Central Government to exempt such companies by notification from provisions of Chapter III, Chapter IV and sections 89, 90 or 127. Each notification must be laid before both Houses of Parliament. Check the current rules and any exemption notification before planning such an issue.
Commencement
Under S.O. 2754(E), section 23 came into force on 12 September 2013, except clause (b) of sub-section (1) and sub-section (2). Those two provisions came into force on 1 April 2014 under S.O. 902(E). Sub-sections (3) and (4), inserted by the 2020 Amendment Act, are recorded in India Code as effective from 30 October 2023.
Practical preparation
Confirm the company type from its incorporation documents. Match the proposed issue to a route permitted by section 23. Apply the Part I or Part II procedure, or the rights or bonus provisions. For a rights or bonus issue, add SEBI compliance if the company is listed or intends to list. For a foreign listing, confirm the prescribed classes and any exemption notification.
Practical checklist
Do
- Record which section 23 route the Board is using in the issue resolution.
- Check the current prescribed classes before planning a foreign listing.
Avoid
- Do not plan a public offer by a private company; section 23(2) does not list that route.
- Do not treat an offer for sale by a shareholder through a prospectus as outside "public offer".
Illustrative example
Hypothetical: a private company raising funds
A private company wants to bring in twenty new investors and is considering a public advertisement.
Route
Section 23(2) limits it to a rights or bonus issue or a private placement.
Choose
For outside investors, the Board considers a private placement under section 42.
Avoid
A public advertisement inviting the public is not a route listed for a private company.
Outcome
- The company proceeds by private placement and follows the Part II conditions.
Glossary
- Public offer
- An initial or further public offer by a company, or an offer for sale by an existing shareholder, made through a prospectus (Explanation to section 23).
- Private placement
- An issue made under Part II of Chapter III (section 42) to identified persons.
Frequently asked questions
Can a private company make a public offer?
Section 23(2) allows a private company to issue securities only through a rights or bonus issue or a private placement. A public offer is not among the listed routes.
Is an offer for sale by promoters a public offer?
Yes, if it is made to the public through a prospectus. The Explanation includes an offer for sale of securities to the public by an existing shareholder.
Can any public company list its shares abroad directly?
Only a class of public companies, issuing a class of securities, on a permitted exchange in a permissible jurisdiction, each as prescribed under section 23(3). The provision is recorded in India Code as effective from 30 October 2023.
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026