5.7 Private Placements 181strained by the articles of association of the company or the terms of the invest-
ment contract.
Memorandum. Typically, the issuer prepares and disseminates disclosure
documents, often referred to as private placement memoranda, to a limited number
of recipients in order to find investors.
The purpose of the private placement memorandum is to manage information,
as well as to reduce risk and transaction costs. The private placement memoran-
dum contains core information about the investment. Furthermore, it contains the
specific terms and conditions drafted by the issuer.^195 This means that the issuer
will not have to negotiate the terms and conditions of the contract with each new
potential shareholder. The investor has only to decide whether to sign the sub-
scription form and transfer the money into the stated bank account.^196
Private placement process. The private placement process resembles a private
sale of shares initiated by the issuer or the vendor (Chapter 12; for auctions, see
section 10.3.2).^197
Regulation in general. There is nevertheless some regulation. First, there are
rules regulating the activities of the participants (the issuer, intermediaries, inves-
tors). Second, there are rules on certain types of transactions (the issuance of
shares, the drawing up of the prospectus, the subsequent marketing of the docu-
ment, and the entering into a subscription agreement).^198 Typically, securities mar-
kets laws contain private placement exemptions.
Community law. There is no coherent set of provisions that would facilitate
cross-border private placement in the EU.^199 Community law contains isolated
provisions that are relevant. The two most relevant Directives are the Prospectus
Directive and the MiFID.
The main effect of the Prospectus Directive is to switch off certain regulatory
requirements when securities are not offered to the public. The Prospectus Direc-
tive applies to an “offer of securities to the public”.^200 The definition of “public of-
ferings” is very broad and can capture a wide range of transactions.^201 For this rea-
son, the Directive also contains broad private placement exemptions for offers of
unlisted securities.^202 If one of those exemptions is met, the obligation to publish a
prospectus will not apply.
However, the Prospectus Directive can require some disclosure even when it
does not require the publication of any prospectus: “When according to this Direc-
tive no prospectus is required, material information provided by an issuer or an of-
feror and addressed to qualified investors or special categories of investors, in-
(^195) See, for example, Groner R, Private Equity – Recht. Stämpfli Verlag AG, Bern (2007)
pp 105–114.
(^196) Speck BD, Tanega J, op cit, p 215.
(^197) See Speck BD, Tanega J, op cit, pp 215–216.
(^198) Speck BD, Tanega J, op cit, p 215.
(^199) Impact Assessment Report on private placement, Commission Staff Working Document,
SEC(2008) 2340.
(^200) Article 1(1) of Directive 2003/71/EC (Prospectus Directive).
(^201) Article 2(1)(d) of Directive 2003/71/EC (Prospectus Directive).
(^202) Article 3(2) of Directive 2003/71/EC (Prospectus Directive).