What Is a Private Placement? Definition, How It Works and Examples

A private placement offering is a sale of new securities by a company that the law does not treat as a public offering. The base rule is Section 4(a)(2) of the Securities Act of 1933. It exempts “transactions by an issuer not involving any public offering.” An issuer is simply the company that creates and sells the securities.

The SEC describes who fits this exemption. Buyers must be able to judge the risk or afford to lose the money. They need access to the kind of facts a prospectus would give. They also agree not to resell to the public. Most companies use the safer, more detailed rules of Regulation D, which spell those conditions out.

What Is a Private Placement Deal?

A private placement deal is one closed sale under those rules. A startup’s Series B round is a private placement. So is a pre-IPO round a few months before a listing, covered in our guide to the pre-IPO placement. A fund that sells interests to its investors also uses one. The buyers are usually accredited investors, meaning people or entities that pass the SEC’s income, wealth or license tests. For an individual, that means a net worth above $1 million without counting their home, or income above $200,000 in each of the last two years.

Private placements are the main way companies raise money in the US. In the 12 months to June 2025, companies raised $378B under Rule 506(b) alone. That is eight times the $47B they raised in IPOs over the same period. Funds raised another $1.9T under the same rule.

A private placement by a private company follows a fairly fixed order. The details vary by deal, but the steps below appear in most rounds.

1. 01
   The termsThe company and its lead investor agree on price, amount and investor rights, often in a short term sheet.
2. 02
   The documentsLawyers draft the purchase agreement and any disclosure document. Some rounds add a private placement memorandum, a booklet that describes the business and its risks.
3. 03
   The investorsEach investor confirms their status, such as accredited investor. Under Rule 506(c), the company must also verify it.
4. 04
   The closingInvestors sign and wire the money, and the company issues the securities. A round can also close in stages.
5. 05
   The filingsThe company files Form D with the SEC within 15 days of the first sale. States can require a notice filing and a fee.

The securities that investors receive are restricted securities. They were never registered, so they cannot be resold to the public without registration or another exemption. The company protects itself in three ways. It asks whether you buy for yourself, it tells you in writing that the shares are unregistered, and it marks the shares with a legend. The routes to a later sale are covered in our guide to Rule 144.

The private placement agreement definition is simple: it is the contract under which an investor buys securities from the company in a private placement. It is often called a securities purchase agreement or a subscription agreement. It can cover common stock, preferred stock, convertible notes, warrants or plain debt. In venture rounds, investors usually buy preferred stock, which carries extra rights over common stock.

The Private Placement Agreement Terms That Matter

• Price and amountHow many shares you buy, at what price, and the total raised in the round.
• Closing conditionsWhat must happen before money moves, such as a minimum total raised or signed side documents.
• Company promisesStatements by the company about its business, debts and share count, called representations. If one proves false, the agreement says what you can claim.
• Your promisesYou confirm that you are accredited, buy for your own account and accept the resale limits.
• Rights of the securityFor preferred stock: a liquidation preference, anti-dilution protection and pro rata rights to join later rounds.
• Information rightsWhether you will receive financial statements, and how often.
• Transfer limitsRestrictions on selling, often including the company’s right to buy the shares first.

A separate placement agent agreement may sit beside it. That contract is between the company and a broker-dealer the company hires to find investors. As an investor, you do not sign it, but its fee comes out of the money raised.

A prospectus is the disclosure document in a registered public offering. It is part of a registration statement, such as Form S-1, that the company files with the SEC. A private placement agreement is a contract. The two do different jobs, as the table shows.

The lighter paperwork does not lower the bar on honesty. Rule 10b-5 bans any untrue statement of a material fact in connection with the purchase or sale of any security. That covers a pitch deck and a private placement memorandum as much as a prospectus.

Private placement offering rules come from a few exemptions. Each one sets who may buy, whether the company may advertise and how much it may raise. The table lists the routes most investors meet.

Rule 506(c) is the one that allows open marketing, and it has its own guide on Rule 506(c). General solicitation, meaning public advertising of the offer, is banned under the other routes. Large debt deals often take another path. Banks buy the securities privately and resell them to big institutions under Rule 144A.

Private Placement Agreement Law: Federal and State

Two layers of law apply to a private placement agreement. Federal securities law decides whether the sale is exempt from registration. Contract law decides what the signed promises mean, and the agreement usually names the state whose law applies. For Rule 506 deals, federal law overrides state registration, but states can still ask for a notice filing and a fee.

Here is how the terms fit together in one round. The company, the investors and every number below are illustrative. A software company raises a Series B under Rule 506(b) from two funds and ten accredited individuals.

Say you invest $100,000 as one of the individuals. You get 10,000 shares, 0.1% of the company after the round. If the company is later sold for $60M, the preference pays you $100,000 first. If it is sold for $500M, you would convert to common and take 0.1%, or $500,000, before fees and taxes.

Read the agreement before you sign, and read it for the rights it gives you. The price is one term among many. Two rounds at the same price can pay out very differently once preferences and transfer limits apply. Our guide to private company stock explains how those share classes work.

Plan for a long hold. Restricted shares can take years to become sellable, and a buyer is not guaranteed even then. Some holders exit early through secondaries, sales of existing stakes to new investors, usually at a price the market sets. The wider list of what can go wrong is in our guide to pre-IPO risks.

Common Mistakes

• Treating the memorandum as SEC-approvedNo one at the SEC reviews it. Only the short Form D notice is filed.
• Reading only the pricePreferences, information rights and transfer limits decide what the shares are worth to you.
• Assuming you can sell when you wantThe shares are restricted. A sale needs an exemption, and often the company’s consent.
• Misstating your statusClaiming accredited status you do not have can cost the company its exemption and expose you to claims.
• Confusing the placement agent with your adviserThe agent is paid by the company to sell the deal.

Private placement

A sale of new securities by a company to selected investors under an exemption from SEC registration.

Private placement agreement

The contract under which an investor buys securities in a private placement. Also called a securities purchase or subscription agreement.

Issuer

The company that creates and sells the securities.

Accredited investor

A person or entity that passes the SEC’s income, wealth or license tests.

Restricted securities

Securities bought in a private sale. They cannot be resold to the public without registration or an exemption.

Private placement memorandum

A disclosure booklet some companies give investors in a private placement. It is not filed with the SEC.

Prospectus

The disclosure document in a registered public offering, filed with the SEC.

Form D

The short notice a company files with the SEC after the first sale in a Regulation D offering.

Placement agent

A broker-dealer hired by the company to find investors for a private placement.

Figures were last checked on October 21, 2026. The rules are United States federal rules. State rules add notice filings and can differ, so check the current text before you act.