- Rapid Acceptance: Private placements have gained significant popularity in recent years as companies seek alternative funding methods outside traditional public markets.
- Overview: A private placement is a method for raising capital whereby a company sells securities directly to a select group of investors rather than through a public offering. This group typically includes institutional investors, such as mutual funds, insurance companies, and pension funds, as well as high-net-worth individuals who meet certain regulatory criteria.
- Legal Guidance: Hiring a private placement attorney is highly advisable if you are considering raising capital through a private placement. Not all attorneys understand the complexity and compliance issues associated with this area of securities law. Poor legal guidance can be devastating for issuers of these private securities.
What is a Private Placement?
- Private placements, in simple terms, is the process of selling securities to a select group, not the general public.
- The benefits of private placements for companies are faster fundraising, less regulation, confidentiality, cost efficiency and flexibility.
- The risks associated with private placements for investors are limited marketability and liquidity along with a higher risk for investors.
Why Use a Private Placement Attorney?
- There are multiple complexities involved in private placements. Private placements must comply with specific regulatory exemptions. An attorney with securities experince ensures that your offering adheres to these regulations, minimizing legal risks.
- Filing Requirements: There are specific forms and filings required with regulatory bodies like the Securities and Exchange Commission (SEC). A Private Placement Attorney can manage these filings accurately and on time.
- A private placement attorney can protect both companies and investors ensuring compliance and mitigating risks.
What Does a Private Placement Attorney Do?
Some of the key tasks performed by a Private Placement Attorney throughout the process are as follows.
- Drafting and reviewing legal documents like the Private Placement Memorandum (PPM), subscription agreements, investor questionnaires, and selling agreements.
- Advising on investor qualification and suitability. An important aspect of this process will include ensuring investors meet accreditation standards and understand the risks involved.
- Ensuring compliance with securities regulations, both federal and state securities laws must be understood and followed by all issuers when raising private capital.
- Negotiating the terms of the offering. Some of these terms are unique and specific and should include the type of security, price per share, investment minimums, and conversion rights. Where else would you find guidance on this important aspect in drafting a PPM? This isn’t something that you can Google. Hiring a securities attorney who becomes your trusted advisor is a must.
- Managing the closing process which can include facilitating the exchange of funds and securities, and ensuring all legal requirements are met.
- Making introductions to trusted business partners of the law firm who operate in the ecosystem of raising private capital.
- Providing ongoing legal counsel throughout the life of the investment. This includes advising on investor relations, reporting requirements, and potential exits.
Finding the Right Private Placement Attorney
Understanding the Importance of Experience:
Seek out an attorney with extensive experience in private placements. They can provide several advantages, a few of which are given below:
- In-depth knowledge of securities regulations and relevant case law.
- Familiarity with different private placement structures and best practices.
- A network of contacts within the investment banking and financial services industries.
- Marketing companies that specifically focus on helping put issuers in touch with investors.
- A proven track record of successfully closing private placements.
- Regulatory defense experience. This is an often overlooked skill when seeking a Private Placement Attorney. Lawyers that defend other law firms’ clients are able to avoid making the same mistakes.
Identifying Qualified Attorneys:
- Due to the complexity of these private offerings, it is highly recommended that issuers hire attorneys who focus on securities law and have experience with private placements. Our attorneys have written the book on this topic. The Lawyer’s Guide to Raising Capital for Business People.
- You can use online legal directories and bar association websites to find qualified attorneys. Since these types of offerings are federally regulated, seek the most qualified attorneys nationally. Hiring a local attorney adds no value, unless they meet all of the criteria previously discussed.
- If cost is a sensitive issue, look for boutique securities law firms with senior counsel and vast experience. Centarus Legal Services has seasoned lawyers who grew tired of the pressure for billable hours they experienced at larger law firms. Early-state issuers appreciate getting competent legal counsel for a fair price from expert securities lawyers who listen to clients.
Choosing the Right Attorney:
- Another advantage of a boutique or mid-size firm is their fees. Instead of hourly billing, flat fee pricing may be available to qualified issuers.
- Communication style, and responsiveness should carry a lot of weight in the interview process as issuers are making their selection.
- Do not overlook the importance of scheduling a consultation with potential counsel.
Conclusion
- A private placement attorney provides expertise, ensures regulatory compliance, drafts necessary legal documents, and helps structure the offering in the most beneficial way. This legal guidance is crucial to successfully raising capital while protecting your company’s interests.
- Schedule an appointment to consult with an experienced Private Placement Attorney when considering raising capital through a private placement. Knowledge comes from experience.