If you want to sell shares in your corporation, you have two choices. One is to make a public offering, which requires navigating through numerous burdensome regulatory obstacles. The other choice is to make a private placement offering to purchasers who are "Accredited Investors" as defined by Securities and Exchange Commission (SEC) regulations. A private placement offering is much simpler to conclude than a public offering.

Finding Accredited Investors
The SEC allows simplified stock purchase procedures for Accredited Investors, because these investors are thought to be sophisticated enough to protect their own interests without extensive SEC oversight. The SEC has enacted complex regulations that define who is and is not an accredited investor, however. In general, top executives, directors and officers of the corporation issuing the stock are considered accredited investors, as are individuals and corporations that meet certain annual income thresholds, generally in excess of $1,000,000,000.

Stock Purchase
A private placement stock purchase agreement should list the names of and identifying details about the purchasers, how many shares they are purchasing and what class of stock they are purchasing. The agreement should require that share certificates be issued to the purchasers, and should provide an exact copy of the certificates as an appendix to the agreement. The issuing corporation should reserve the right to cancel the transaction and refund the purchase price if a purchaser makes any representation that falsely qualifies him as an accredited investor.

The Private Placement Memorandum
The SEC requires corporations that issue stock to accredited investors prepare a Private Placement Memorandum that reveals details of the corporation's financial status. Although it is far less extensive than the information required to issue stock to the general public, the corporation's financial statements must be included along with certain other information. The Private Placement Memorandum should be attached to the stock purchase agreement as an appendix.

Purchaser's Warranties
A corporation issuing stock to a private investor incurs significant legal risk if the SEC later determines that the purchaser does not qualify as an accredited investor. For this reason, the purchaser should indemnify the issuing corporation against any legal expenses it may incur if the purchaser has made false or misleading representations and the SEC subsequently rules that the purchaser is not an accredited investor. The purchaser should also guarantee not to divulge any non-public information contained in the Private Placement Memorandum and not to use this information to compete with the issuing corporation.