PRIVATE PLACEMENT : A company makes the offer of sale to individuals and
institutions privately without the issue of a prospectus. This saves the cost of issue of
securities. The securities are placed at a higher prices to individuals and institutions.
Institutional investors play a very important role in the private placement. This has
become popular in recent days.
This method is less expensive and time saving. The company has to complete a very
few formalities. It is suitable for small companies as well as new companies. This
method can be used when the stock market is dull. However, the private placement
helps to concentrate securities in the few hands. They can create artificial scarcity
and increase the prices of shares temporarily and then sell the shares in the stock
market and mislead the common and small investors. This method also deprives the
common investors of an opportunity to subscribe to the issue of shares.
What is Private Placement?
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