Question

What are the key distinctions between a private placement and a public offering? Why would Rule 144A increase foreign private placements? Answer Should not be less than 750 words.

Answer 1

Private Placement:- when a company issues shares to a selected group of persons without listing that securities and going public. Investors should be an Identified buyer, generally Qualified Institutional Buyers. There is criteria to be in the list of Qualified Institutional Buyer. Not required to comply with registration as well as disclosure requirement. Number of investors are limited to as specified by Securities and Exchange Commission (SEC).

WHEREAS

Publice Offer:- Company invite investors to subscribe its securities and simultaneously required to list the same in Stock Exchange. Company required to comply with listing and registration as well as disclosure requirement as prescribed by Securities and Exchange Commission (SEC). No criteria for investor to be eligible to subscribe securities offered. Company can issue securities to as many investor as applied for allotment.

Rule 144A:- Rule 144A introduce to provide a platform to foreign companies to sell their securities in US markets. To attract foriegn companies the rule also provide facility to issue securities without listing in US stock exchange and other disclosure requirement.This rule covering buyiing and selling of restricted securities and the same are exempted from Securities and Exchange Commission (SEC) registration requirement and can not be traded on public market. This rule provide flexibility to intitutional investor to trade securities to improve liquidity and efficiency of private placement. Moreover, by making the U.S. markets more attractive to companies outside the U.S., the rule is also expected to significantly increase the opportunities of U.S. institutional investors to acquire the securities of foreign companies. Privately Placed securities can be traded among the Qualified Institutional Buyers without Securities and Exchange Commission (SEC) registration. It attracts more foreign private placement because it does not require detailed information and protection as individual investor required.