Capital Market and Securities Laws · Issue of Capital and Disclosure Requirements

Public Issue Basics and Types of Issues under SEBI ICDR

Updated 11 October 2026 · Fact-checked

A company raises capital either by a public issue (offer to the public through a prospectus, such as an IPO or FPO), or by a rights issue, bonus issue, private placement or QIP. Under section 23 of the Companies Act, 2013, the route you may use depends on whether the company is public or private. In exams, identify the type, state the rule, then conclude.

Understand Public Issue Basics and Types of Issues

A company needs money to grow. It can get it by issuing securities. The law cares about who is invited and how, because a wide invitation to the public needs more investor protection.

The first split is between a public offer and everything else. Under section 23, a public company may issue securities to the public through a prospectus, by private placement, or by a rights issue or bonus issue. A private company can use only rights issue, bonus issue or private placement. It cannot go to the public.

Within public offers, an IPO (initial public offer) is the first time an unlisted company offers shares to the public. A FPO (further public offer) is when an already listed company, or one that has already gone public, offers more shares to the public. The Explanation to section 23 says a public offer includes an initial or further public offer, and also an offer for sale by an existing shareholder, made through a prospectus. In an offer for sale, existing holders sell their shares. The company gets no new money from that part.

Other routes are aimed at narrower groups. A rights issue is an offer to existing shareholders. A bonus issue gives free shares to existing shareholders out of reserves, so no cash comes in. A private placement is an offer to a select group of identified persons, not by way of public offer. A QIP (qualified institutions placement) is a route for listed companies to raise equity from qualified institutional buyers. It is governed by the SEBI ICDR Regulations and needs no prospectus-style public offer. Check the exact conditions in your ICSI study material.

SEBI backs all this. Section 11A of the SEBI Act, 1992 lets SEBI specify by regulations the matters relating to issue of capital and how companies disclose them. It can also, by orders, prohibit a company from issuing a prospectus, offer document or advertisement soliciting money, or set conditions for issuing one. The ICDR Regulations are made under this power.

Key rules to remember

Routes for a public company (section 23(1)): Public offer through prospectus | Private placement | Rights issue or bonus issue; For a listed company, or one intending to list, rights and bonus issues must also follow SEBI law and its regulations.
Routes for a private company (section 23(2)): Rights issue or bonus issue | Private placement; No public offer is open to a private company.
Private placement: number of persons (section 42(2)): Identified persons ≤ 50 (or higher number prescribed) in a financial year, excluding QIBs and employees under an ESOP scheme; If the limit is breached, the issue is deemed a public offer (section 42(11)) and Part I of the Chapter applies.
Private placement: allotment and refund (section 42(6)): Allot within 60 days of receiving application money; else refund within 15 days after the 60 days; later, interest at 12% p.a. from the 60th day; Money must sit in a separate bank account in a scheduled bank until allotment.
Private placement: return of allotment (section 42(8)): File return with Registrar within 15 days of allotment; Delay attracts a penalty of ₹1,000 per day of default, subject to a maximum of ₹25 lakh (section 42(9)).
Private placement: restrictions: No public advertisement; no right of renunciation; payment by cheque, demand draft or other banking channel, not cash; Contravention penalty can extend to the amount raised or ₹2 crore, whichever is lower (section 42(10)).
Shelf prospectus (section 31): Validity up to 1 year from the opening of the first offer; information memorandum before each later offer; No fresh prospectus is needed for second or later offers within the validity period.
Demat rule (section 29): Every company making a public offer must issue securities only in dematerialised form; Other classes may be prescribed.

How to solve Public Issue Basics and Types of Issues questions

Use this method for any question that asks you to classify an issue, compare issue types, or advise a company on its route.

1Read the facts and note the company type: public or private, listed or unlisted.
2Identify who is being offered the securities: the general public, existing shareholders, a select group, or institutions.
3Identify what is given: new shares for cash, free shares from reserves, or existing shares sold by holders.
4Name the issue type: IPO, FPO, offer for sale, rights, bonus, private placement or QIP.
5State the governing provision: section 23 for the route, section 42 for private placement, section 31 for shelf prospectus, and the ICDR Regulations for the detailed conditions.
6Apply the key conditions to the facts, such as the 50-person limit, the 60-day allotment period or the ban on advertising.
7End with a clear conclusion on whether the issue is valid, deemed public, or what the company should do.

Quickest way: Who, What, Which route

When to use it: Use this for short-answer and difference-type questions when time is tight.

Ask Who: public, existing members, a select group, or institutions.
Ask What: fresh cash issue, free shares, or sale of existing shares.
Match: public → IPO or FPO; members for cash → rights; members free → bonus; select group → private placement; institutions → QIP.
Check company type against section 23, since a private company cannot make a public offer.
Write one line of law and one line of conclusion.

Common mistakes in Public Issue Basics and Types of Issues

Saying a private company can make an IPO or a public offer.
Students remember the types of issue but forget section 23 separates public and private companies.
Fix: Always state company type first. Section 23(2) allows a private company only rights or bonus issue and private placement.
Treating an offer for sale as raising fresh capital for the company.
It is listed beside IPO, so it looks like a new issue.
Fix: Write that in an offer for sale existing shareholders sell their shares, so the proceeds go to them, not to the company. It still counts as a public offer under the Explanation to section 23.
Saying a private placement can go to any number of people.
Students recall that it is a private route but not the cap.
Fix: State that identified persons cannot exceed fifty or the higher prescribed number in a financial year, excluding QIBs and ESOP employees. Breach makes it a deemed public offer under section 42(11).
Calling a bonus issue a way to raise money.
Bonus shares are 'issued', so students link them to fund raising.
Fix: Say a bonus issue capitalises reserves and brings in no cash. Compare it with a rights issue, which brings in cash from existing members.
Mixing up the private placement time limits.
Several periods appear together: 60, 15 and 15 days.
Fix: Remember: allot within 60 days of receipt of money; refund within 15 days after that; return of allotment within 15 days of allotment. Interest is 12% p.a. from the 60th day if the refund is late.
Writing about QIP as if it were a public issue with a prospectus.
Both involve listed-company equity and the public markets.
Fix: Describe QIP as a placement to qualified institutional buyers by a listed company under the ICDR Regulations, not an offer to the general public.

Worked examples

Example 1

Sunrise Textiles Private Limited wants to raise ₹5 crore from the general public through a prospectus. Advise the company on whether it can do so.

Show the solution

Provision: Section 23 of the Companies Act, 2013 lists the routes open to each type of company.
Facts: Sunrise Textiles is a private company, and it wants a public offer through a prospectus.
Analysis: Under section 23(2), a private company may issue securities only by rights issue or bonus issue, or by private placement under Part II of the Chapter. Public offer through a prospectus is listed only for public companies in section 23(1)(a).
Option: The company may use private placement to a select group of identified persons, subject to section 42. Or it may convert to a public company first, subject to the law on conversion.

Answer: Sunrise Textiles cannot make a public offer while it is a private company. It may use a rights issue, bonus issue or private placement. To approach the public, it would first need to become a public company.

Example 2

Meera Pharma Limited, an unlisted public company, offers shares by private placement to 70 identified persons in a financial year. None is a QIB or an employee under an ESOP scheme. Assume no higher number has been prescribed. Is this a valid private placement?

Show the solution

Provision: Section 42(2) limits a private placement to identified persons not exceeding fifty, or such higher number as may be prescribed, excluding QIBs and ESOP employees, in a financial year.
Facts: 70 persons are offered the shares, none of them excluded, and no higher number applies.
Analysis: 70 is more than 50, so the limit in section 42(2) is breached.
Consequence: Section 42(11) says a private placement not made in compliance with section 42(2) is deemed a public offer. All provisions of the Companies Act, the Securities Contracts (Regulation) Act, 1956 and the SEBI Act, 1992 then apply. Explanation III to section 42 also treats an offer to more than the prescribed number as an offer to the public governed by Part I of the Chapter.

Answer: It is not a valid private placement. The issue is deemed a public offer, so Meera Pharma must comply with the public offer provisions, including a prospectus, and the related securities laws.

Exam tips

For 'distinguish' questions, use rows such as: persons offered, document used, number limit, advertising allowed, and governing provision. Write them as short parallel points.
Always cite section 23 for the routes and section 42 for private placement. Examiners reward the provision before the analysis.
In problem questions, count the persons and the days carefully and compare them with the limits in section 42 before concluding.
Define IPO, FPO, offer for sale, rights, bonus, private placement and QIP in one line each. These definitions often fetch easy marks.
Link ICDR Regulations to SEBI's power under section 11A of the SEBI Act in one sentence to show you know where the rules come from.

Practice questions from Issue of Capital and Disclosure Requirements

Public Issue Basics and Types of Issues in other exams

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

Public Issue Basics and Types of Issues: frequently asked questions

What is the difference between a public issue and a private placement?

A public issue is an offer to the public at large through a prospectus, such as an IPO or FPO. A private placement is an offer to a select group of identified persons, capped at fifty or the higher prescribed number in a financial year, with no public advertising. Private placement is governed by section 42 of the Companies Act, 2013.

What is the difference between an IPO and an FPO?

An IPO is the first offer of shares to the public by an unlisted company. An FPO is a further offer of shares to the public by a company that has already made a public offer or is listed. Both are public offers made through a prospectus.

What is a qualified institutions placement (QIP)?

A QIP is a way for a listed company to raise equity from qualified institutional buyers under the SEBI ICDR Regulations. It is not an offer to the general public. Study the detailed conditions from your ICSI study material.

Can a private company issue a rights issue or bonus issue?

Yes. Section 23(2) allows a private company to issue securities by way of a rights issue or bonus issue, in accordance with the Act. It can also use private placement. It cannot make a public offer.