Question

Assertion (A) : A public issue involves issuing securities to 50 or more investors.
Reason (R) : The Companies Act, 2013 defines public issues based on the number of investors.

• A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of the Assertion (A).
• B. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
• C. Assertion (A) is true, but Reason (R) is false.
• D. Assertion (A) is false, but Reason (R) is true.
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Hint:

If a company attempts to bypass public issue regulations by calling an offering “private,” but distributes securities to 50 or more people, the law automatically reclassifies it as a public issue.

Answer 1

The Correct Option is A

Step 1: Evaluating the Assertion (A):
Under corporate and securities law in India, when a company offers shares or debentures to the general public, it is classified as a public issue. By definition, if an offer of securities is made to 50 or more persons (subject to specific private placement exemptions and amendments, such as the limit being increased to 200 for select private placements, though the baseline transition remains rooted in the 50-investor rule), it is legally treated as a public offer. Therefore, Assertion (A) is True.

Step 2: Evaluating the Reason (R):
The Companies Act, 2013 uses quantitative thresholds to distinguish between private placements and public offerings. If an offer is made to more than the statutory limit of investors, it is categorized as a public offer and is subject to stricter disclosure and regulatory requirements. Thus, the Companies Act, 2013 indeed defines the boundary of a public issue based on the volume of target investors. Hence, Reason (R) is True.

Step 3: Assessing the Logical Link:
The reason why issuing securities to 50 or more investors represents a public issue is because the Companies Act, 2013 has established this exact numerical boundary to separate private placements from public offerings. Therefore, Reason (R) is the correct and direct explanation of Assertion (A).