What Is a Private Placement? A Plain-English Guide for Companies & Investors
Updated February, 2 2026
Not every company wants — or needs — to go public to raise capital. In fact, most don’t. A private placement is one of the most common ways businesses raise money while staying private, avoiding the cost, exposure, and regulatory burden of a public offering. Understanding how private placements work is essential for founders raising capital and investors evaluating risk.
What Is a Private Placement?
A private placement is a way for a company to raise capital by selling securities to a select group of investors, rather than offering those securities to the general public. This approach is most commonly used by companies that are not prepared — or do not wish — to go public, but still need funding to support operations, growth, or expansion.
Because private placements rely on exemptions from registration, they tend to be more flexible and faster than public offerings, while still remaining subject to securities laws.
Common Examples of Private Placements
Private placements can take many forms. The securities offered may include equity (stock), debt (bonds or notes), or hybrid instruments such as debentures or convertible securities. These offerings are typically made to accredited investors, institutional investors, funds, or family offices.
Most private placements are documented through a Private Placement Memorandum (PPM) — a disclosure document that outlines the business, the terms of the investment, risks, and potential returns. A PPM is widely considered best practice because it helps reduce liability and sets expectations clearly.
How Does the Private Placement Process Work?
Compared to public offerings, private placements are less burdensome from a regulatory standpoint, allowing companies to raise capital more efficiently and at a lower cost. That said, they are not unregulated. Issuers have to still comply with applicable securities exemptions, which may include:
Filing a Form D with the SEC after the offering begins; and
Providing investors with adequate disclosures to avoid misleading statements or omissions.
Advantages and Disadvantages of Private Placements
One of the main advantages of a private placement is that it allows a company to raise capital without becoming a public company. By avoiding an IPO, businesses sidestep extensive disclosure obligations, reporting requirements, and public market pressure. On the other hand, investors may demand higher ownership stakes, preferred returns, or fixed dividend rights to compensate for risk and illiquidity. In debt offerings, buyers may require collateral or security interests, especially when no credit rating exists.
What Are the Limitations of Private Placements?
Private placements are subject to important restrictions. Most notably, securities issued in a private placement are not freely transferable. Investors are generally prohibited from reselling these securities to the public for a specified holding period — often at least one year — unless another exemption applies.
These transfer restrictions limit liquidity and are a key distinction between private and public securities. Investors typically understand this upfront, but it remains an important consideration when structuring a deal.
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*This article is provided for informational purposes only, and does not constitute legal advice, counsel or representation
