when a company wishes to raise capital it will often issue shares of stock for purchase by either the general public or through a private placement the primary disclosure form for potential general public investors is a prospectus the prospectus is a disclosure document listing information about the business and its underlying security 
a private placement is a sale of stock to a limited number of accredited investors who meet specific criteria the criteria for accredited status include having a particular level of investment experience assets and net worth 4 investors will receive a private placement memorandum as an alternative to the prospectus the memorandum provides a less comprehensive description of the investment in many cases a subscription agreement accompanies the memorandum some agreements outline a specific rate of return that will be paid to the investor such as a particular percentage of company net income or lump sum payments also the agreement will define the payment dates for these returns this structure gives priority to the investor as they earn a rate of return on the investment before company founders or other minority owners 