Private Placements, Actors & Regulations

The following reviews the principal regulations which govern Private Placement offerings of securities and describes allowable investor participants.

  • Private Placements are Offerings of Securities.  The transaction and the related securities do not follow the public registration requirements of the Securities Exchange Commission (“SEC”).  They are traditionally offered in a non-public manner (i.e., without public advertising) and sold only to larger Investors.  The Federal law authorizing Private Placements is Section 4(a)(2) of the Securities Act of 1933.
  • Private Placements can include any form of Security, such as Promissory Notes or equity interests (e.g. ,common stock, preferred stock or membership interest in a Limited Liability Company).
  • Investors in Private Placements typically include wealthy individuals, Registered investment Advisors, managed funds, insurance companies and other forms of institutions who qualify as Accredited Investors.  See “Accredited Investor Verification Guidelines” and also “Accredited Investor Questionnaire” for more information.
  • A registered Securities Broker-Dealer may act as a Placement Agent to conduct an Offering on behalf of the Issuer, or the Issuer can offer securities directly to investors.  If a Placement Agent is used, the firm must be a registered Broker-Dealer with the Financial Industry Regulatory Authority (“FINRA”).
  • Private Placements are subject to all federal and state regulations regarding Securities issuance, including those relating to misrepresentation and fraud.
  • Regulation D is a regulation of the SEC originally adopted in 1980 which contains specific rules for the proper conduct of a Private Placement in the United States (also known as safe harbor guidelines).  Following the Rules within Regulation D is strongly recommended.
  • Specific guidelines for larger Offerings of securities which are sold to investors across state lines are found within Regulation D in Rules 506(b) and Rule 506(c).
  • Rule 506(b) offerings are non-public (no advertising permitted).  An unlimited amount of securities may be offered discreetly (i.e., by direct communication with no public advertising of the offering) to an unlimited number of Accredited Investors and up to 35 non-Accredited Investors (also see “Regulation D, Rule 506(b) Private Placements”).
  • Rule 506(b) Offerings, while providing some flexibility with regard to participation by non-Accredited Investors, are typically limited to Accredited Investors.
  • In 2013, new Rule 506(c) amendments to Regulation D authorized “general solicitations” (public advertising) for privately placed Securities limited to investment only by Accredited Investors (also see Regulation D, Rule 506(c) Private Placements”).

For a discussion of certain risks associated with Private Placements, please read Private Placement Investment Considerations.





In the interest of accessibility, here are some terms that any investor should be familiary with.