180 5 Equity and Shareholders’ Capital
ised to issue shares or share options, purchase own shares (share buybacks), and
dispose of own shares purchased by the company.
The transferability of shares. The transferability of shares belongs to the
fundamental characteristics of a limited-liability company. The firm can
nevertheless manage the transferability of shares in various ways (section 10.3.1,
Chapter 18, and Volume I).
Duties of disclosure. The duties of disclosure have already been discussed in
the context of management of information (Volume I) and will be discussed in the
context of listed companies (section 5.9 and Chapter 19).
5.7 Private Placements...............................................................................
Section 5.6 dealt with many of the general legal aspects relating to the issuing of
shares by a privately-owned limited-liability company under the EU legal capital
regime. They will be discussed in more detail in sections 5.10 and 5.11. Sections
5.8 and 5.9 will discuss the large regulatory regime applicable to issuers of shares
admitted to trading on a regulated market. This section (5.7) will discuss some
particular legal aspects relating to private placements.
Private placements are a way to raise funds from private, institutional, or trade
investors without having to comply with onerous regulations. Many start-up com-
panies require substantial capital in order to get their business going. Private
placements can generally work as a stepping-stone for companies not ready to join
public markets.^194 Private placements are a very important part of raising funding
in Europe.
Benefits. The use of private placements can bring many benefits to the issuer
and investors. The lack of extensive regulation means that the private placement
process, as a whole, is faster and cheaper. Information asymmetries can be re-
duced, because the parties can agree that investors participate in the valuation
process. Investors can prefer to invest in the company’s shares before an IPO, be-
cause the admission of shares to trading on a regulated market will increase liquid-
ity, demand, and share price.
On the other hand, the absence of a large body of mandatory provisions of law
and the private nature of private placements means that the parties will have to
agree on most things. Investors are therefore exposed to a higher legal risk. Even
the issuer is exposed to a higher legal risk. Akin to business acquisitions (Chapters
12–13 and 19), the management of information becomes important, because the
issuer may become liable for misrepresentations or omissions on the basis of in-
formation exchanged by the parties in the course of the private placement process.
Where the shares will not be traded on a stock exchange, investors may also
face problems when trying to exit the company. For example, exit may be con-
(^194) Speck BD, Tanega J, Private Equity Placements: Comparing the Laws in Switzerland,
the European Union, the United Kingdom and the United States of America: Part 1,
JIBLR 21(4) (2006) p 213.