Section 23 of Companies Act 2013: How Companies Raise Money Legally in India

Every growing company reaches a point where internal funds are just not enough. Expansion, new projects, working capital, acquisitions—everything needs money. And that’s where Section 23 of the Companies Act, 2013 quietly steps in.

This section doesn’t tell companies how much money to raise.
It tells them how they are allowed to raise it.

Public money is sensitive. Investor trust even more so. Section 23 sets the boundaries, so companies don’t cut corners while raising capital.

Two Ways Companies Can Raise Capital

Under Section 23, companies basically have two recognised routes.

One is loud and public.
The other is selective and controlled.

Public Offer

A public offer means offering shares or debentures to the general public. This is what most people associate with IPOs.

Initial Public Offerings (IPOs) and Further Public Offerings (FPOs) fall into this category.

Through a public offer, a company can raise large sums. But it comes at a cost—strict disclosures, SEBI scrutiny, and ongoing compliance. Everything from financials to risks has to be placed openly in a prospectus. No hiding, no shortcuts.

Once public money is involved, transparency is non-negotiable.

Private Placement

Private placement is quieter.

Here, securities are offered to a selected group of investors—institutions, private equity funds, HNIs, or strategic partners. It’s faster. Less expensive. And far more controlled.

But that doesn’t mean unregulated.

Board approvals are mandatory. Shareholder consent may be required. Offer letters must be issued. ROC filings cannot be skipped.

Private placement works best when companies want targeted funding without opening doors to the public.

What Section 23 Actually Regulates

Section 23 is not just about choosing a method. It lays down the process.

Companies must ensure:

• Board approval before issuing securities

• Shareholder approval where applicable

• Prospectus for public offers

• SEBI compliance for listed or public issues

• Proper documentation and ROC filings for private placements

Miss any of these, and the fund raise itself becomes questionable.

That’s where many companies slip.

IPOs and FPOs: The Public Route

An IPO is when a private company becomes public for the first time.
An FPO is when an already listed company raises more capital.

In both cases, disclosure is everything.

The prospectus must clearly mention:

• Why funds are being raised

• Where the money will be used

• What risks investors are taking

• Financial performance

• Who is running the company

Section 23, combined with SEBI regulations, ensures investors are not investing blind.

Private Placement: Faster, But Still Regulated

Private placement is popular with startups and growing companies.

But it has limits.

Usually, securities cannot be offered to more than 200 persons in a financial year (excluding qualified institutional buyers and employees under ESOPs).

Offer letters must be specific.
Money must come through banking channels.
Allotment timelines must be followed.

Private placement is flexible—but not casual.

Rights Issue and Bonus Shares Also Come Under Section 23

Section 23 also recognises other methods.

Rights Issue means offering additional shares to existing shareholders, usually at a discount. It protects ownership and prevents unfair dilution.

Bonus Shares are free shares issued by capitalising reserves. No cash comes in, but shareholder value increases.

Both methods still need approvals, documentation, and transparency.

Investor Protection Is the Real Objective

Strip away the technical language, and Section 23 has one core purpose—protect investors.

It ensures:

• Investors get full information

• Funds are raised honestly

• Promises are backed by disclosures

• Shareholders are treated fairly

Whether it’s an IPO or a private deal, misleading information can land companies in serious trouble.

Where Companies Usually Go Wrong

Some common mistakes:

• Issuing shares without proper board approval

• Skipping ROC filings

• Treating private placement like a casual deal

• Poorly drafted prospectuses

• Ignoring SEBI requirements

Most of these errors are avoidable with basic compliance planning.

A Simple Compliance Flow That Works

Before raising funds:

• Decide the route

• Get board approval

• Check shareholder requirements

During the issue:

• Draft prospectus or offer letter carefully

• Follow timelines strictly

• Accept funds only through proper channels

After allotment:

• File all documents

• Maintain records

• Communicate transparently

Simple steps. Big protection.

FAQs on Section 23 of Companies Act 2013

Can a private company issue shares to the public?
No. It must first convert into a public company.

Is private placement completely exempt from SEBI?
SEBI rules apply mainly to listed companies, but Companies Act compliance still applies fully.

Are rights issues treated as public offers?
No. Rights issues are limited to existing shareholders, but still regulated.

Final Thoughts

Section 23 is not a hurdle. It’s a roadmap.

It allows companies to raise capital, grow faster, and attract investors—without compromising trust or legality. Companies that respect this framework don’t just raise funds; they build credibility.

If you’re planning a public offer, private placement, rights issue, or bonus issue, or just want clarity on compliance under Section 23, Callmyca.com can help you structure it correctly, legally, and safely.