A private placement is a sale of stock shares or bonds to pre-selected investors and institutions rather than on a public exchange. It is an alternative to an initial public offering (IPO) for a young company seeking to raise money to expand.
The process is sometimes referred to as a 4(a)(2) private placement. The main process that enables such a sale is the 4(a)(2) exemption to Securities and Exchange Commission (SEC) rules regarding registration of public companies. The 4(a)(2) exemption permits companies and buyers of their securities to conduct such transactions without the company first filing for registration with the SEC.