What distinguishes a private placement from a public offering?

The distinguishing factor of a private placement is that it is typically sold only to a select group of investors, often institutional investors, rather than the general public. This exclusivity arises because private placements do not need to go through the extensive regulatory requirements that public offerings do, making them a quicker and more flexible way for companies to raise capital. By targeting institutional investors, companies can secure substantial investment amounts without the need for extensive marketing or compliance measures.

In contrast, public offerings must comply with stringent regulations set forth by the Securities and Exchange Commission (SEC) and can be sold to any investor, which includes both institutional and individual retail investors. This wider accessibility allows companies to tap into a larger pool of potential capital. The notion that private placements have higher costs is not accurate; generally, they are considered to be less costly in terms of regulatory compliance compared to public offerings. Thus, the correct understanding of private placement lies in its restricted audience, primarily focused on institutional investors.