A public issue refers to the process by which a company offers its shares or debentures to the general public to raise capital. Under Section 23 of the Companies Act, 2013, a company intending to raise funds from the public must issue a prospectus that contains all material information about the company, its financials, risks, and objectives. The primary aim of a public issue is to mobilize funds for business expansion, working capital, or new projects. It provides an opportunity for investors to become shareholders and participate in the growth of the company.
Legal Framework Governing Public Issue
The legal framework ensures transparency and investor protection. Section 26 of the Companies Act, 2013 mandates that the prospectus should not contain any false or misleading statements. Contravention of these provisions can attract civil and criminal liabilities, including fines and imprisonment for responsible officers. Additionally, SEBI regulations under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, provide detailed procedural guidelines for listing, disclosures, and underwriting of public issues, ensuring a fair investment environment.
Process of Public Issue
A public issue typically involves steps such as board approval, filing of a draft prospectus with the Registrar of Companies (RoC), obtaining SEBI approval, and marketing the shares to potential investors. The issue can be an initial public offering (IPO) for first-time public share offerings or a follow-on public offering (FPO) for existing listed companies. Investors can subscribe to shares through online applications, broker networks, or designated banks during the issue period.
Real-Time Example
In 2023, Zomato Limited raised funds through a public issue via its IPO. The company filed a detailed prospectus with SEBI, highlighting its revenue, risk factors, and growth plans. Investors across India were able to subscribe to the shares, and the successful allotment enabled Zomato to expand its delivery and tech infrastructure nationwide, demonstrating how a public issue facilitates corporate growth while offering investment opportunities to the public.
Mnemonic to Remember Public Issue
Think “P.R.O.S.” – Prospectus required, Raised publicly, Open subscription, Share allocation. This simple mnemonic helps recall the key steps and purpose of a public issue under Indian Company Law.
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