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Explaining Private Placement Of Securities


If someone is wanting to invest their money in the stock market or in securities, they have many options. The U.S. Securities & Exchange Commission (SEC) requires that securities specifically either be registered with the commission, or qualify for an exemption under the Securities Act of 1933. Securities that qualify for a specific exemption – generally, under Regulation D or Section 4(a)2 – are known as private placements, and are handled very differently than public securities.

Public vs Private

Businesses raise capital in many different ways, though selling securities is one of the most common. Usually this is done by businesses that want to go public eventually, as part of an Initial Public Offering (IPO). That said, there is a significant amount of work and preparation that must go into an IPO, in addition to making the decision to give up some freedom in exchange for capital. As a result, many companies may try to raise capital before going public.

There are several different reasons that a company might choose not to register their securities with the SEC, and instead search for an exemption that fits their offerings, with one of the most common being that brand new companies often lack the capital to be able to offer publicly traded securities without posing an enormous risk to investors who may not know better. Private placements are offered to a much smaller, more experienced clientele, who have the experience and knowledge needed to accurately assess the risk.

Why So Risky?

The risk of investing in a private placement is twofold, even if the opportunity comes from someone that you as an investor know and trust. Because private placements are most often offered by fledgling companies, the simple risk of their failure is much higher than with an ordinary investment. Data from the Bureau of Labor Statistics, as reported by Fundera, estimates that 20 percent of small businesses fail within their first year, with the percentage rising to half after two.

In addition, only qualified investors can take advantage of private placements – one must be accredited, and have a net worth of over $1 million, plus an income of $200,000 ($300,000 for a married couple). This is partially because investments in private placements tend to last years, and the wealthy are far more likely to be able to not have access to the funds they have invested without causing serious financial problems for themselves. The stakes are high and both success and failure have potential fallout.

Contact A Seminole, FL Securities Attorney

If you have questions or concerns about private placement of securities, enlisting a Florida securities attorney from the Hunt Law Group can ensure they are properly handled. Contact our office today at (727) 471-0444 to schedule a consultation.



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