Randy’s, a family-owned restaurant chain operating in Alabama, has grown to the point that expansion throughout the entire Southeast is feasible. The proposed expansion would require the firm to raise about $18.3 million in new capital. Because Randy’s currently has a debt ratio of 50% and because family members already have all their personal wealth invested in the company, the family would like to sell common stock to the public to raise the $18.3 million. However, the family wants to retain voting control. You have been asked to brief family members on the issues involved by answering the following questions:
Private placement offers the securities of a company to specific potential investors whereas public offering offers the securities to the public at large.
A company can issue a memorandum to the specified investors rather than issuing prospectus in case of private placement whereas, the issuance of a full fledged prospectus is mandatory in case of public offering.
Private placement does not require registration of securities whereas, securities are required to be registered with securities and exchange commission before offering to the public. As the securities are registered in case of public offering, investors can trade the securities in the market and the concerned company can also have easy and quick access to the equity capital.
Private placement is the offer of company's securities to accredited investors through financial institutions rather than inviting the public at large. Whereas, public offering is the process of raising capital by offering company's securities to the general public through issue of prospectus.
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