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Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors. "Private placement" usually refers to non-public offering of shares in a public company (since, of course, any offering of shares in a private company is and can only be a private offering).
PIPE (private investment in public equity) deals are one type of private placement. SEDA (standby equity distribution agreement) is also a form of private placement. They are often a cheaper source of capital than a public offering.
In the United States
Although these placements are subject to the Securities Act of 1933, the securities offered do not have to be registered with the Securities and Exchange Commission if the issuance of the securities conforms to an exemption from registrations as set forth in the Securities Act of 1933 and SEC rules promulgated thereunder. Most private placements are offered under the Rules known as Regulation D. Different rules under Regulation D provide stipulations for offering a Private Placement, such as required financial criteria for investors or solicitation allowances. Private placements may typically consist of offers of common stock or preferred stock or other forms of membership interests, warrants or promissory notes (including convertible promissory notes), bonds, and purchasers are often institutional investors such as banks, insurance companies or pension funds. Common exemptions from the Securities Act of 1933 allow an unlimited number of accredited investors to purchase securities in an offering. Generally, accredited investors are those with a net worth in excess of $1 million or annual income exceeding $200,000 or $300,000 combined with a spouse. Under these exemptions, no more than 35 non-accredited investors may participate in a private placement. In most cases, all investors must have sufficient financial knowledge and experience to be capable of evaluating the risks and merits of investing in a company.
- Comptroller of the Currency Administrator of National Banks (March 1990). Private placements: Comptroller's Handbook. US Department of the Treasury. Retrieved 2009-06-13.
- "Regulation D Offerings: 506B vs 506C". AccreditedInvestors.net.
- U.S. Securities and Exchange Commission on Accredited Investors
- Morgan, Thomas; Lewis and Roca LLP (March 6, 2013). "Raising Capital - What You Don’t Know Could Hurt You". The National Law Review. Retrieved March 17, 2013.