Private placement
From Wikipedia, the free encyclopedia
A private placement is a direct private offering of securities to a limited number of sophisticated investors. It is the opposite of a public offering. Investors in privately placed securities include insurance companies, pension funds, mezzanine funds, stock funds and trusts. Securities issued as private placements include debt, equity, and hybrid securities. In the United States, private placements are exempt from public registration under the Securities Act of 1933.
The exemption from registration for a private offering is contained in Regulation D of the Securities Act of 1933. While the procedure for conducting a private placment pursuant to the exemption is less stringent than for that of a public offering, the process requires a careful compliance with the terms and restrictions of Regulation D.
Those requirements typically require the use of a private placement memorandum, which, for all practical purposes, complies with the requirements of a prospectus which is required in public offerings. The important aspects of the offering are covered: a description of the terms of the offering, the company's business, risk factors, additional terms (i.e., antidilution protection, registration rights, control features), expenses of the transaction and summary financial information. The purpose of the summary is to make the offering easy to read and understand. As stated, suppliers of capital are inundated with business plans and private placement memoranda; the sales-conscious issuer must get all the salient facts in as conspicuous a position as possible if he hopes to have them noticed.
Private placements can only be sold to certain sophisticated investors. In the U.S. these are called accredited investors, and they are defined in the U.S. Securities and Exchange Commission's requirements for a Reg. D offering.
Issuers should approach offerings that have stated maximums and minimums with caution. The SEC has made its position clear. If the issuer elects to increase or decrease the size of the offering above the stated maximum/minimum, each of the investors who have signed subscription agreements must consent to the change in writing. It is not open to the issuer to send out a notice to the effect that "We are raising or lowering the minimum and, if we do not hear from you, we assume you consent."
