The practice of raising funds in exchange of company shares. Aside from obtaining additional capital, private placements can also have a goal of adding, with minimal regulatory constraints, new select private investors. The investors participating in a private placement usually are institutions and accredited investors. Despite being privately held, private placements function like stock offerings. As a new generation of shares is being issued, existing stockholders will eventually get diluted and result in lower price per share.
Preferred and Common stock are ownership shares — or ‘equity securities’ — issued by companies. These securities entitle stakeholders to a specific ownership percentage of the company. The primary differences between Preferred and Common stock are voting rights and priority. Holders of Preferred stock have priority when dividends are issued, and will be paid first when the company is sold or liquidated. For example, if a company goes bankrupt, the redistribution of the residual assets owned by shareholders will first be distributed to Preferred shareholders, and the remainder (if any) will go to the Common shareholders.