What are Private Placement Securities?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 01 January 2020
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Private placement securities are security offerings that are not included in any type of public offering. Instead, the securities are offered to a select group of private investors who have the opportunity to purchase the new shares. Depending on the laws governing the issue of stock shares in the country of origin, private placement securities may include shares of preferred or common stock, as well as different types of membership interests, promissory notes, and even warrants. Investors who are more likely to be offered these types of securities as part of a private placement include banks, pension funds, and insurance companies.

By issuing private placement securities, the issuers normally do not have to comply with the same regulations or follow the exact processes that are necessary when planning some type of public offering of the shares. With this type of non-public offering, many nations have alternative regulations that must apply. In the United States, the Securities and Exchange Commission does not require that the securities be registered if those securities meet exemption standards as set forth in the Securities Act of 1933. The typical reporting processes that are associated with a public offering are also waived, allowing the purchase of the shares to take place on an invitation-only basis.


One of the benefits of private placement securities is the relatively low cost of issuing the securities. Unlike a public offering, there is no need to involve brokers or underwriters in the sale of the options. Small businesses may also find this approach helpful in terms of maintaining confidentiality. Since the offering does not have to be registered with the same level of detail as a public offering, the business can offer investors the opportunity to remain anonymous to all but a few directly involved with the sale.

Along with the advantages associated with private placement securities, there are also a few potential drawbacks. One has to do with finding the right investors to participate in the non-public offering. The asking price for the securities may also be discounted somewhat heavily in comparison to making a public offering. This means that the issuers may have to settle for less equity in order to attract the right type of investors. Arranging for the sale of private placement securities can also be somewhat more complicated if making the offer across jurisdictional lines. For example, if the offering will be extended to potential investors based in more than one state, the issuers may have to deal with state-level regulations that vary somewhat in order to successfully complete the process.



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