Understanding Private Placements

You may be looking to raise capital for your company by offering equity to a certain group of investors (can be friends, family, associates etc) as opposed to a public offering. If so, this type of securities offering is considered a private placement exempt from SEC registration if the issuance conforms to one of the exemptions set forth in the Securities Act of 1933 and discussed below.

Private offerings are issued under Regulation D of the Securities Act of 1933, the SEC requires stock offerings to be registered unless offered in compliance with a Regulation D exemption. Reg D has three exemption levels known as Rules 504, 505 and 506. They primarily apply to the amount of the offering. Most private offerings are made under Rule 506. These exempt offerings or private placements are used to raise capital for startups, real estate syndications, and film production projects to name a few. 

What is the Regulation D exemption for private placements? 

Reg D requires that you receive a private placement memorandum disclosing the company business and potential risks associated with the company and the value of the investment. Also required is a subscription agreement and an accredited investor questionnaire.

Companies conducting an private placement offering under Rule 506(b) can raise an unlimited amount of money and can sell securities to an unlimited number of accredited investors. An private offering under Rule 506(b) is subject to to the following requirements as stated on SEC's website:

(i) no general solicitation or advertising to market the securities; 
​(ii) cannot sell securities to more than 35 non-accredited investors; 
(ii) give non-accredited investors specified disclosure documents that generally contain the same information as provided in registered offerings (the company is not required to provide specified disclosure documents to accredited investors, but, if it does provide information to accredited investors, it must also make this information available to the non-accredited investors as well); 
(iii) be available to answer questions from prospective purchasers who are non-accredited investors; and;
 (iv) provide financial statement information

Under Rule 506(c), issuers may offer securities through means of general solicitation, provided that: (i) all purchasers in the offering are accredited investors, (ii) the issuer takes reasonable steps to verify their accredited investor status, and (iii) certain other conditions in Regulation D are satisfied.
 
In addition to Reg D private placements, Regulation Crowdfunding created by the JOBS Act is becoming more popular. If you want to know more about making an offering to raise capital for your real estate syndication, startup, or project, contact us!

​One of the basic principles of contract drafting is ensuring all parties involved have reduced the agreed upon terms to writing within the contract in a clear and consistent manner. As you can imagine, this is important to avoid ambiguity in contract interpretation and to clarify the obligations and intentions of each party. After reading the complaint against Disney I have a strong suspicion that the contract between Marvel and Johansson has holes in it that should have been plugged prior to Johansson signing and prior even to COVID.
 
Scarlett Johansson’s attorneys have initiated a lawsuit against Disney alleging “Intentional Interference with Contractual Obligations” and “Inducing Breach of Contract”. Johansson is alleging that Disney, as the parent company of Marvel, caused the release of Black Widow on Disney+, their video streaming platform, breaching her contract with Marvel. She alleges Marvel promised the film would be released exclusively in box office with a portion of Johansson’s compensation being tied to box office sales. Releasing the film on Disney+ in addition to box office significantly impacts box office sales and Johansson’s compensation while enriching Disney.
 
While we haven’t seen the actual contract, and so can’t determine exactly what was promised to Scarlet Johansson, we do have access to the complaint. Reading the complaint a few things immediately raise my transactional attorney red flags:
 
"Ms. Johansson obtained from Marvel a valuable contractual promise that the release of the Picture would be a 'Wide theatrical release'. Both parties, as well as Disney, understood this meant that the Picture would initially be released exclusively in movie theatres, and that it would remain exclusively in movie theatres for a period of between approximately 90 and 120 days."
 
Relying on statements from such as “widely theatrical like our other pictures” made by Marvel’s chief counsel and settling for an implied meaning of “like our other pictures” to mean exclusive release in movie theaters for a period of 90 to 120 days was a mistake. I’ve always been told its better to be safe than sorry. As far as contracts go, it’s the drafting attorney’s job to analyze the possible risks and through clarify any vague and broad language in drafting the contract to mitigate risk. We do this by being extremely analytical and quite literally draining the meaning of everything and reducing it to very specific, clear and defined terms.
 
Why Johansson’s attorneys decided not to narrow the meaning of “widely theatrical” to “exclusively theatrical” as argued in the complaint, I do not know. But it does further demonstrate the extreme aforethought, care and consideration that must be given to contract drafting to protect your client’s interest, present and future; and the tremendous economic risk that could result when the meaning of parties’ intentions are not made clear and reduced in writing. This is important to close any loopholes.
 
It is worth mentioning that Johansson’s attorneys did reach out to renegotiate the terms and amend the contract once Marvel announced Black Widow would be released on Disney+, but Marvel did not respond and moved forward with the streaming release and box office release anyway.