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Private Placement

Updated on March 8, 2023

When a company issues shares or securities to few accredited or selected investors, it is known as private placement. Private placement, in other words, means raising capital by selling securities to a selected group of strong investors. Private Placement can be of two types
a. Preferential Placement – in this case, securities are issued to Mutual Fund companies, financial entities or promoters at a specific price
b. Qualified Institutional Placement – In this case, securities are issued to only big institutional buyers

Which companies use private placement?

Companies which are not eligible for stock listing or comparatively new companies go for private placement. They can directly approach large accredited investors, private equity funds or other such entities for funds. These investors have enough investible surplus and are on the lookout for investing in startups or future growth companies.

What are the benefits of Private Placement?

Some of the key benefits of Private Placement are
a) Quick financial assistance
b) Low cost
c) Minimum disclosure requirement
d) Good for raising reasonable amount of capital