Private placement of securities is undertaken when an organization conducting business decides to offer its securities directly to a small group or an individual who will be interested to invest. This is the exact of offering the securities to the public, called a public issue. A private placement does not need to be registered to SEC or Securities and Exchange Commission, or any stock exchange, and is also exempted from complying to regular reporting requirements.

Private placement investments is deemed as profitable, practical and cost-effective manner of raising capital without the need to go public, through initial public offerings. Many investors nowadays are looking at going to private placement investments.

Most financial experts advise investors that a private placement of credits or equities is a quicker and cheaper way to obtain capital from a limited number of people who will invest. A private placement is deemed appropriate when a company lacks a strong financial status, or does not have the reputation to appeal to the public who might be interested to invest, or if the company is unable to afford the expenses of going public for its offerings.

There are many advantages in choosing private placements in contrast to IPOs. Private placements do not require the service of underwriters or brokers, which is why it is considerably cheaper and consumes less time. Aside from this, private placements could be the only source of available capital to start up firms or risky ventures.

Private placements could also enable a sole proprietor to choose the investors who may have similar interests and goals. Since the people who will invest are more likely to be those who have higher financial liquidity, it might be possible for the company to structure more confidential and complex transactions.

If your investors are widely experienced in enterprises and businesses, you will have the advantage of benefiting from their input on how to properly manage your business. If your investors would like to maintain their privacy on their investment on you, you can also benefit from this because your company does not have to divulge its financial status to the public.

There are disadvantages associated with the private placements of securities. It is challenging to find the investors that may be suitable for your business, and if they are found, they may have limited funds to invest in your endeavor.

Aside from this, private placements of securities are typically sold below their market value. Companies who choose to undertake this avenue also may need to relinquish more of their equities, because the investors may want to receive more compensation for taking a bigger risk by the assumption of an illiquid position.

The essayist who wrote this exposition has found an expert named Josh Yudell. Josh Yudell is also the Managing Director of a private equity fund and is credited with the creation and popularization of a funding vehicle known as a PSSO (Private Secondary Shareholder Offering).