What is a Private Placement?

April 18, 2011

A Private Placement is a batch of unregistered securities that is offered to individuals/entities for a share in a private company.  The securities are restricted and subject to certain rules.  The rules, via the SEC, are below:

According to the SEC:

What Are the Conditions of Rule 144?

If you want to sell your restricted or control securities to the public, you can follow the applicable conditions set forth in Rule 144.  The rule is not the exclusive means for selling restricted or control securities, but provides a “safe harbor” exemption to sellers.  The rule’s five conditions are summarized below:

  1. Holding Period. Before you may sell any restricted securities in the marketplace, you must hold them for a certain period of time.  If the company that issued the securities is subject to the reporting requirements of the Securities Exchange Act of 1934, then you must hold the securities for at least six months.  If the issuer of the securities is not subject to the reporting requirements, then you must hold the securities for at least one year.  The relevant holding period begins when the securities were bought and fully paid for.  The holding period only applies to restricted securities.  Because securities acquired in the public market are not restricted, there is no holding period for an affiliate who purchases securities of the issuer in the marketplace.  But the resale of an affiliate’s shares is subject to the other conditions of the rule.
  2. Additional securities purchased from the issuer do not affect the holding period of previously purchased securities of the same class.  If you purchased restricted securities from another non-affiliate, you can tack on that non-affiliate’s holding period to your holding period.  For gifts made by an affiliate, the holding period begins when the affiliate acquired the securities and not on the date of the gift.  In the case of a stock option, such as one an employee receives, the holding period begins as of the date the option is exercised and not the date it is granted.


  3. Adequate Current Information.  There must be adequate current information about the issuer of the securities before the sale can be made.  This generally means that the issuer has complied with the periodic reporting requirements of the Exchange Act.


  5. Trading Volume Formula. If you are an affiliate, the number of equity securities you may sell during any three-month period cannot exceed the greater of 1% of the outstanding shares of the same class being sold, or if the class is listed on a stock exchange or quoted on Nasdaq, the greater of 1% or the average reported weekly trading volume during the four weeks preceding the filing a notice of sale on Form 144.  Over-the-counter stocks, including those quoted on theOTC Bulletin Board and the Pink Sheets, can only be sold using the 1% measurement.


  7. Ordinary Brokerage Transactions.  If you are an affiliate, the sales must be handled in all respects as routine trading transactions, and brokers may not receive more than a normal commission.  Neither the seller nor the broker can solicit orders to buy the securities.

  9. Filing a Notice of Proposed Sale With the SEC.  If you are an affiliate, you must file a notice with the SEC on Form 144 if the sale involves more than 5,000 shares or the aggregate dollar amount is greater than $50,000 in any three-month period.  The sale must take place within three months of filing the Form and, if the securities have not been sold, you must file an amended notice.



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