Capital Market and Securities Laws · Issue and Listing of Non-Convertible Securities

Public Offer vs Private Placement of Debt Securities

Updated 11 October 2026 · Fact-checked

Under Section 23 of the Companies Act, 2013, a public company can issue securities by public offer (prospectus), private placement (Section 42), or rights or bonus issue. A private company cannot make a public offer. Private placement goes only to identified persons, with no public advertising. Breach of the person limit turns it into a public offer.

Understand Public Offer vs Private Placement of Debt Securities

A company needs money. It can borrow by issuing debt securities such as debentures. The first question the law asks is: who are you offering them to? Section 23 answers this by listing the permitted modes of issue.

A public company may issue securities in three ways: (a) to the public through a prospectus, called a public offer; (b) through private placement under Part II of the Chapter; or (c) through a rights issue or bonus issue. For a listed company, or one that intends to list, the rights or bonus issue must also follow the SEBI Act, 1992 and the rules and regulations made under it.

A private company has fewer routes. It may issue securities by rights issue or bonus issue, or by private placement. It has no route to the public through a prospectus.

The Explanation to Section 23 says a public offer includes an initial public offer, a further public offer, and an offer for sale by an existing shareholder, all through a prospectus. The key mark of a public offer is that it is made to the public at large through a prospectus.

Private placement is the opposite. Section 42 allows it only to a select group of identified persons, chosen by the Board. The company sends a private placement offer-cum-application. It cannot advertise or use media or agents to tell the public at large.

Public offers also bring SEBI into the picture. Section 11A of the SEBI Act empowers SEBI to specify by regulations the matters relating to issue of capital, transfer of securities and the manner of disclosure by companies. By general or special orders, SEBI can also prohibit a company from issuing a prospectus, offer document or advertisement soliciting money from the public, or specify the conditions on which these may be issued. In your answers, always link the mode of issue to the right chapter of the Act and to the SEBI rules.

Key rules to remember

Modes of issue for a public company (Section 23(1)): Public offer (prospectus) | Private placement (Part II) | Rights issue | Bonus issue; Rights and bonus issues of a listed company, or one intending to list, must also follow the SEBI Act and the rules and regulations under it.
Modes of issue for a private company (Section 23(2)): Rights issue or bonus issue | Private placement; No public offer through a prospectus.
Number of identified persons (Section 42(2)): Identified persons in a financial year ≤ 50, or such higher number as may be prescribed (the Rules prescribe 200); The Act's base figure is fifty, and the Rules prescribe the higher number of 200 persons in a financial year. QIBs and employees offered securities under an ESOP scheme (as per Section 62(1)(b)) are excluded from the count. Subject to prescribed conditions.
Offer to more than the prescribed number (Section 42, Explanation III): Offer, invitation, allotment or agreement to allot to more than the prescribed number of persons = deemed public offer; Applies to listed or unlisted companies, whether or not payment is received and whether or not listing is intended. Governed by Part I of the Chapter.
Mode of payment (Section 42(4)): Cheque, demand draft or other banking channel; not cash; The company must not use the money until allotment is made and the return of allotment is filed with the Registrar.
Allotment and refund timeline (Section 42(6)): Allot within 60 days of receiving application money; else refund within 15 days after the 60 days; failing which, interest at 12% per annum from the 60th day; Application money must be kept in a separate bank account in a scheduled bank. It can be used only for adjustment against allotment or for refund.
Return of allotment (Section 42(8)): File with Registrar within 15 days from the date of allotment; Include a complete list of allottees with full names, addresses and number of securities allotted.
Penalty for late return (Section 42(9)): ₹1,000 per day of default, maximum ₹25 lakh; Payable by the company, its promoters and directors.
Penalty for contravention (Section 42(10)): Penalty up to the lower of (amount raised) and ₹2 crore; The company must also refund all monies with interest within 30 days of the penalty order. Subject to Section 42(11).
Breach of the person limit (Section 42(11)): Non-compliance with sub-section (2) = deemed public offer; The Companies Act, SCRA 1956 and SEBI Act then apply.

How to solve Public Offer vs Private Placement of Debt Securities questions

Use this order for any question on how a company can issue debt securities, or on public offer versus private placement.

1Identify the issuer: public company or private company. This decides the routes open under Section 23(1) or 23(2).
2Identify the audience. Is the offer made to the public through a prospectus, or to a select group of identified persons through a private placement offer-cum-application?
3State the mode and its source: public offer under Part I of the Chapter, private placement under Section 42, or rights or bonus issue under the Act.
4Test the facts against Section 42: number of identified persons, renunciation, mode of payment, advertising, separate bank account, 60-day allotment, 15-day return.
5Check the listing angle. If the company is listed or intends to list, bring in the SEBI Act and the rules and regulations made under it. Mention Section 11A where SEBI's power over offer documents matters.
6Decide the consequence of any breach: penalty under Section 42(9) or (10), or deemed public offer under Section 42(11).
7Write a clear conclusion in one or two lines that answers the exact question asked.

Quickest way: Three-question filter

When to use it: Use this for short-note questions and case-study questions when time is tight.

Who is the issuer: public or private company? (Private company: no prospectus route.)
Who is the audience: the public at large, or identified persons within the limit?
Was any rule of Section 42 broken? If the person limit was broken, the issue is a deemed public offer. For other breaches, apply the penalty or refund rule.
Write: provision, facts, conclusion. Cite Section 23 and Section 42.

Common mistakes in Public Offer vs Private Placement of Debt Securities

Quoting the private placement limit without the Act's wording or the financial-year basis.
Students remember a single number, either fifty from the Act or 200 from the Rules, and drop the rest of the rule.
Fix: Section 42(2) says the number shall not exceed fifty or such higher number as may be prescribed. The Rules prescribe 200 persons in a financial year, excluding QIBs and ESOP employees. Quote both the Act's wording and the Rules' figure, and count per financial year.
Forgetting that exceeding the limit makes the issue a public offer.
Students focus on penalties and miss Section 42(11) and Explanation III.
Fix: State that an issue not complying with sub-section (2) is deemed a public offer, and the Companies Act, SCRA and SEBI Act then apply.
Saying a private company can make a public offer through a prospectus.
Students remember the three routes for public companies and apply them to all companies.
Fix: Remember Section 23(2): a private company has only rights or bonus issue and private placement.
Allowing renunciation or cash payment in a private placement.
Students mix private placement with a rights issue, where renunciation is a familiar idea.
Fix: Section 42(3) proviso: no right of renunciation. Section 42(4): payment by cheque, demand draft or other banking channel, not cash.
Mixing up the time limits: 60 days, 15 days and 30 days.
There are several periods in one section.
Fix: Allot within 60 days of receiving money. Refund within 15 days after those 60 days. File the return within 15 days of allotment. Pay refund within 30 days of a penalty order.
Treating a prospectus-based offer for sale by an existing shareholder as outside public offer.
Students think a public offer means only fresh issue by the company.
Fix: The Explanation to Section 23 includes an offer for sale to the public by an existing shareholder through a prospectus.

Worked examples

Example 1

Sunrise Textiles Private Limited wants to raise ₹5 crore by issuing debentures to the public through a prospectus. Advise whether it can do so under the Companies Act, 2013.

Show the solution

Provision: Section 23(2) lists the routes for a private company: rights issue or bonus issue, or private placement under Part II of the Chapter.
Section 23(1)(a), which allows an issue to the public through a prospectus, applies only to a public company.
Facts: Sunrise Textiles is a private company, and it proposes a public offer through a prospectus.
Analysis: The route it wants is not open to a private company under Section 23.

Answer: Sunrise Textiles Private Limited cannot make a public offer through a prospectus. Under Section 23 the private company has only the rights issue, bonus issue or private placement routes. It can raise the money by private placement under Section 42 to identified persons, or by rights or bonus issue.

Example 2

Bharat Infra Limited, an unlisted public company, makes a private placement offer of debentures to 250 identified persons, none of whom is a QIB or an ESOP employee, in one financial year. The Rules prescribe a limit of 200 persons in a financial year. State the legal position.

Show the solution

Provision: Section 42(2) allows private placement only to identified persons not exceeding fifty, or such higher number as may be prescribed, in a financial year, excluding QIBs and ESOP employees. The prescribed number is 200.
Facts: 250 persons, with no exclusions, against the prescribed limit of 200. The excess is 250 − 200 = 50 persons.
Explanation III to Section 42: an offer, invitation, allotment or agreement to allot to more than the prescribed number is deemed an offer to the public, even for an unlisted company, and Part I of the Chapter applies.
Section 42(11): a private placement not made in compliance with sub-section (2) is deemed a public offer, and all the provisions of the Companies Act, SCRA 1956 and SEBI Act apply. This operates notwithstanding the penalties in Section 42(9) and (10).
Result: the issue is treated as a public offer, so the prospectus and related requirements apply.

Answer: The issue is not a valid private placement because 250 persons exceed the prescribed limit of 200. Under Section 42(11) it is deemed a public offer, so the provisions of the Companies Act, 2013, the SCRA 1956 and the SEBI Act, 1992 apply to it as to a public offer. This operates notwithstanding the penalty provisions of Section 42(9) and (10).

Exam tips

Start every answer with Section 23 and name the issuer type. It earns the first marks quickly.
Learn Section 42 as a checklist: identified persons (fifty in the Act, or the higher prescribed number, which is 200 under the Rules), no renunciation, banking channel, no advertising, 60 days, return in 15 days.
In difference-type questions, compare on audience, document, number of persons, advertising, renunciation and regulatory regime. Use bullet points in your own words.
Link to SEBI where the issue is public or the company is listed. Mention Section 11A of the SEBI Act for SEBI's power over offer documents and advertisements.
In case studies, always end with a one-line conclusion: valid private placement, or deemed public offer.

Practice questions from Issue and Listing of Non-Convertible Securities

Public Offer vs Private Placement of Debt Securities in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Public Offer vs Private Placement of Debt Securities: frequently asked questions

What does Section 23 of the Companies Act, 2013 deal with?

It lists how public and private companies may issue securities. A public company may use a public offer, private placement, rights issue or bonus issue. A private company may use rights issue, bonus issue or private placement.

What is the main difference between public offer and private placement of debentures?

A public offer is made to the public through a prospectus. A private placement is made only to identified persons through a private placement offer-cum-application, within the limit in Section 42(2), with no public advertising. The rules, documents and regulatory oversight differ.

How many persons can a company offer securities to in a private placement?

Section 42(2) says the number shall not exceed fifty or such higher number as may be prescribed, in a financial year. The Rules prescribe 200 persons in a financial year. QIBs and employees offered securities under an ESOP scheme are excluded. Conditions may be prescribed.

What happens if a private placement offers securities to more than the allowed number of persons?

The issue is treated as a public offer. Section 42(11) and Explanation III apply the public offer provisions of the Companies Act, the SCRA 1956 and the SEBI Act.