Placement securities: Overview, definition, and example
What are placement securities?
Placement securities are financial instruments, typically shares or bonds, that a company offers to a specific group of investors, often institutional or accredited investors, rather than through a public offering. The process of placing these securities is typically referred to as a private placement. The purpose of placement securities is to raise capital quickly and with fewer regulatory requirements than public offerings, making them a common choice for companies looking to secure funding without the extensive process of a public offering.
For example, a startup might offer placement securities to venture capital firms to raise funds for its expansion.
Why are placement securities important?
Placement securities are important because they allow companies to raise capital more efficiently, bypassing the complexities and costs of public offerings. This makes them an attractive option for businesses that want to secure funding quickly or maintain a higher level of control over their investor base. Placement securities also benefit investors by providing access to potentially high-growth opportunities, although they may carry higher risk due to the lack of the transparency and liquidity often associated with public markets.
Understanding placement securities through an example
Imagine a private technology company that needs capital for product development. Rather than conducting a public offering, which would require extensive disclosure and regulatory approval, the company offers placement securities to a small group of institutional investors. These investors agree to purchase shares directly from the company at a negotiated price, helping the company raise the necessary funds without going public.
In another case, a real estate company might issue placement securities in the form of bonds to raise capital for a new property development. These bonds are sold directly to select investors, giving the company immediate access to funds while avoiding the need for a public bond offering.
An example of a placement securities clause
Here’s how a placement securities clause might appear in a contract:
“The Company intends to issue placement securities to accredited investors under a private placement offering, subject to applicable securities laws and regulations.”
Conclusion
Placement securities provide companies with a streamlined way to raise capital by offering financial instruments directly to a targeted group of investors. This method bypasses the regulatory hurdles of public offerings, making it an attractive option for businesses looking to secure funding quickly. While placement securities offer benefits in terms of speed and flexibility, they also come with higher risks for both the issuing company and the investors involved.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.