What Is Non-Brokered Private Placement?

by Brett Bivens; Updated September 26, 2017
Non-brokered private placement offers business leaders flexibility in building their businesses.

When raising capital, a company can elect to tap either the public or private capital markets. A company can choose to seek additional investment for many reasons, including growth, acquisitions or to strengthen its liquidity position. Raising capital through a non-brokered private placement is one of the numerous options a company has when attempting to achieve one of these goals.

What Private Placement Is

Private placement (also known as a private offering) occurs when a company hoping to raise capital sells securities to a small number of investors. In most cases these investors are institutional (banks, insurance companies, mutual funds) or wealthy individuals. Private placement is the opposite of public placement, in which companies offer securities to investors on the open market. Most private placements are subject to Securities and Exchange Commission Regulation D, which aims to provide access to the capital markets for smaller companies.

Types of Securites Sold in Private Placements

Private placements typically consist of sales of shares of common stock or preferred stock or other forms of membership interests, warrants or promissory notes (including convertible promissory notes). The wide range of potential options for a company going through a private placement gives management flexibility when considering the future of the company. Since many of these companies are small, management often has a large ownership interest, and the individuals running the company must consider how the offering will alter their control of the business.

Non-Brokered Private Placement

Non-brokered private placement takes on most of the characteristics of a traditional private placement. The only major difference is that in a non-brokered private placement, a company's investor relations department sells the stock (or other security) directly to investors. By doing this, the company can forgo the fees and hassle of hiring a broker (often an investment bank) and maintains more control over the selling process.

Benefits of Non-Brokered Private Placement

In addition to cost savings related to investment banking fees, companies using non-brokered private placement benefit in other ways. While private placements are still subject to the Securities Act of 1933, the company is not required to register the security offering with the SEC. This saves the company the costs associated with filing and allows it to keep detailed financial information private. With a private placement, the company also has the ability to hand-select investors.

About the Author

Brett Bivens began writing professionally in 2010. He has wide range of experience researching and writing about personal finance for a large North American financial institution. Bivens holds a Bachelor of Science in finance from Valparaiso University.

Photo Credits

  • Comstock Images/Comstock/Getty Images