| Private Placement: The direct sale of securities by a company to investors is called private placement. In private placement no prospectus is issued. Private placement covers shares, preference shares and debentures. It is assumed that the investors have sufficient knowledge and experience to be capable of evaluating the merits and risks of the investment. The financial intermediary, however, plays a vital role in preparing an offer memorandum, and negotiating with investors. The private placement has obvious advantages of speed and confidentiality. Private placement offers access to capital more quickly than public issue which may take six months to one year. However, it is possible to raise funds through private placement within 2 to
3 months. Access to primary market is quite costly on account of various mandatory and non-mandatory expenses. Some public companies are too small to afford a public issue, such companies choose to use private placement. Further the requirement of companies may be smaller than the minimum stipulated for public issue for listing at different stock exchanges. Finally private placement is not influenced like the primary market by the prevailing bull or bear phases in the stock market. The attitude of institutional investors towards the regular issue of securities in private placement market is more stable and continuous.
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