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Private Placements

Private placements of securities are exempt from the registration requirement of the Securities Act of 1933 (1933 Act) because they do not involve a public offering. Private placements ordinarily consist of large blocks of securities being sold to institutional investors such as insurance companies or pension funds. Because the purchasers in these transactions are sophisticated and able to demand information more extensive than that contained in a registration statement, the SEC has deemed such transactions to be private and not subject to its registration requirements.

The SEC has also deemed offerings of securities to key employees of the issuing company and exchange offers to acquire the stock of closely held companies to be private in nature, and thus exempt from its registration requirement.

An additional important transactional exemption is the intrastate offering exemption, which permits securities to be offered and sold to persons residing within a single state without federal registration. These offerings are local in nature, and all parties, including the issuer, reside in the same state.

Finally, under Regulation D, the SEC considers an offer of securities to limited numbers of investors for a limited amount of money to not involve a public offering. Regulation D permits:

  • Sales of $1 million worth of securities in any twelve-month period to any number of purchasers;
  • Sales of $5 million worth of securities in any twelve-month period to any number of accredited investors and up to thirty-five non-accredited purchasers; and
  • Sales of an unlimited amount of securities to any number of accredited investors and up to thirty-five non-accredited investors, so long as the issuer reasonably believes that the non-accredited investors have such knowledge or experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment.

"Accredited investor" is defined to include banks and other institutional investors, charitable or educational institutions with assets of more than $5 million, directors and officers of the issuer, millionaires and persons with annual incomes of more than $200,000, and trusts with more than $5 million in assets. Accordingly, these transactions constitute private placements and are exempt from the 1933 Act's registration requirement.

Federal law imposes civil liability for fraudulent misstatements or omissions in any offer or sale of securities, regardless of whether the offer or sale is part of a public offering or part of a private placement.

Even if a private placement is exempt from the federal registration requirements, it is likely that the issuer will need to register the offering in states in which offers or sales are made.

Checklist: Securities Law

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Securities Law

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