Settlement of placement shares: Overview, definition, and example
What is the settlement of placement shares?
The settlement of placement shares refers to the process by which shares issued during a private placement are formally transferred from the issuer (typically a company) to the investors who have purchased them. This process involves finalizing the payment for the shares and officially registering the ownership of the shares to the new investors. The settlement ensures that both parties fulfill their obligations: the company delivers the shares, and the investors pay for them. This typically happens after the placement of shares has been agreed upon, but before the shares are officially recorded in the company’s shareholder registry.
For example, if your business is offering shares to a select group of investors through a private placement, the settlement process involves the transfer of those shares to the investors in exchange for their payment.
Why is the settlement of placement shares important?
The settlement of placement shares is important because it marks the finalization of a transaction where capital is raised by a business through the issuance of new shares. It ensures that the funds are fully collected and that the investors receive the shares they have purchased. This step is crucial for completing the investment process, allowing the company to access the capital it needs and giving the investors their stake in the business.
For SMBs, completing the settlement process efficiently is vital for securing the necessary funding, maintaining accurate shareholder records, and ensuring that the investment complies with regulatory requirements.
Understanding the settlement of placement shares through an example
Imagine your business is raising funds through a private placement of 100,000 shares to a group of accredited investors. Once the terms of the deal are agreed upon, and the investors have committed to purchasing the shares, the settlement process begins. The investors wire the agreed-upon funds to your company, and in return, you issue the shares and transfer them to the investors' accounts. This marks the completion of the placement, and your company now has access to the raised capital.
In another example, after completing a successful private placement, the company’s legal team or transfer agent ensures that the shares are issued to the investors, and the company’s records are updated with the new ownership information.
An example of settlement of placement shares in action
Here’s how the settlement of placement shares might be referenced in a private placement agreement:
“The settlement of the placement shares shall occur no later than 10 business days following the final subscription, at which point the investor shall transfer the full purchase price to the company, and the company will issue and deliver the corresponding shares to the investor.”
Conclusion
The settlement of placement shares is the process by which newly issued shares are formally transferred from the company to the investors in exchange for payment. For SMBs, efficiently handling the settlement of placement shares is essential to successfully raising capital, ensuring compliance with legal and regulatory requirements, and properly recording ownership in the company’s shareholder registry. This process marks the completion of the private placement and ensures that the funds are fully secured and the shares are issued.
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.