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Law Office of Clifford J. Hunt, P.A Florida Securities & Business Lawyer
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What is a private placement offering?

On behalf of Law Office of Clifford J. Hunt, P.A. posted in private placements of securities on Wednesday, August 29, 2018.

A private placement offering of securities is a non-public offering of a company’s equity ownership interests. The ownership interests can consist of common stock, preferred stock, membership interests, options, warrants and convertible debentures. Typically, a company will engage in a private placement of its securities to raise operational capital before it ever seeks to “go public” by filing a registration statement with the Securities and Exchange Commission (“SEC”) or otherwise engage in a reverse merger with a company that is already a publicly traded entity. The securities in a private placement are typically sold directly to investors by the officers and directors of the issuing company. The securities sold in a private placement are deemed “restricted securities” as such term is defined in SEC Rule 144 and may not be transferred for at least six months on any public market such as the New York Stock Exchange, NASDAQ or OTCQB Market. The purchasers of securities in private placements become equity owners of the issuing company and may ultimately realize profits from their investment through appreciation in the price of the security or the distribution of dividends by the issuing company.

There are various exemptions from registration that companies can utilize in selling their unregistered securities. The most commonly utilized transaction exemption is found in SEC Regulation D, Rule 506. This exemption allows companies to sell an unlimited dollar amount of their securities to an unlimited number of “accredited investors.” An accredited investor is an individual who has a net worth in excess of $1,000,000 or annual income of at least $200,000 or $300,000 when investing with their spouse. Under both state and federal securities laws, a company may not sell its securities to more than 35 “non-accredited” investors in any single private placement offering. Florida has a self-executing transaction exemption that typically does not require the filing of any documents with the Florida Office of Financial Regulation or the payment of any filing fee. Each other state requires the filing of a Form D and payment of a filing fee in each Regulation D, Rule 506 offering.

However, unlike the highly regulated world in which publicly traded securities must operate, stocks sold in private placement offerings are not subject to as much scrutiny. In order to complete a private placement offering an entity must provide potential buyers with specific information about it and its operations so that the investors can make informed decisions about where to put their money.

Private placement offerings can serve certain types and sizes of businesses that may otherwise not receive the capital boosts they need on large stock exchanges. In order to set up a private placement offering, business owners should speak with securities attorneys in their communities who understand the important regulatory and legal compliance issues that must be met to effectuate these transactions.

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