Free tools Windows power users keep installed
One-click scans. No signup required.
In the United States, a company can borrow from private investors by issuing promissory notes instead of selling bonds through a public registered offering—but the word “private” does not by itself exempt the sale from securities registration. The company must register the securities or qualify for an available exemption, and investors still need to assess the issuer’s ability to repay.
What a private note is—and what it commits the company to do
A private note is generally a promissory note sold to one or more investors as debt. Investors provide capital, and the company promises repayment under the note’s terms, typically principal plus interest. The SEC describes a promissory note as debt similar to a loan or an IOU (SEC, “Investor Tips: Promissory Note Fraud — Broken Promises”).
The note is the agreement that sets out the deal; there is no single standard rate, maturity, collateral package, or repayment schedule. Read the actual document for the principal amount, interest, maturity date, payment timing, collateral or security, default provisions, prepayment rights, and transfer restrictions. Those terms determine what the company owes and what remedies or limitations may apply if it does not pay.
Why a private note still needs a securities-law route
A company does not avoid securities law simply by calling its borrowing private or issuing a note rather than a public bond. The SEC says every offer and sale of securities—including sales by private companies and sales to a single person—must be registered or conducted under an available exemption (SEC, “Private Companies and the SEC”). Whether a particular promissory note is a security depends on the circumstances; not every note automatically is one.
Do these 3 things before closing this tab:
1Fix the driver behind crashes, sound loss and screen glitches2Clear out junk files and repair common Windows errors3Scan for outdated or missing drivers - takes under a minute#1 Best Overall
If the offering involves securities, the company must identify and satisfy a registration exemption. Regulation D is one common set of routes, but private notes do not all use it. The chosen route affects solicitation, purchaser eligibility, verification, disclosures, and filings.
Rule 506(b): no general solicitation
Under Rule 506(b), an issuer may not use general solicitation or advertising to market the offering. It may sell to an unlimited number of accredited investors and no more than 35 non-accredited investors in any 90-calendar-day period, subject to the rule’s conditions. Each non-accredited purchaser must meet a sophistication standard, and the issuer must provide specified information to those purchasers. See the SEC’s Rule 506(b) guidance.
Rank #2
- Ideal for Gifting
- Ideal for a bookworm
- Compact for travelling
Rule 506(c): solicitation allowed, with purchaser and verification conditions
Rule 506(c) permits general solicitation, but every purchaser must be an accredited investor, and the issuer must take reasonable steps to verify that status. Other Regulation D conditions apply. Securities sold under Rule 506 are restricted, which can limit resale. State registration and review are preempted for Rule 506 offerings, but states may retain anti-fraud authority and require notice filings, consent to service of process, or fees. See the SEC’s Rule 506(c) guidance.
Form D and state notice requirements
Issuers relying on Regulation D generally must file Form D within 15 calendar days after the first sale. For this purpose, the SEC staff describes the first sale as the date the first investor becomes irrevocably contractually committed. The Form D filing does not replace any applicable state notice filing or fee. Check the SEC’s Form D FAQ and the requirements in the states relevant to the offering.
Recommended Free Tools
What investors should verify before buying
A note is a promise to pay, not proof that the issuer will have the money to do so. The SEC advises investors to investigate an issuer’s ability to pay, particularly when a note is not registered (SEC investor guidance). Consider the offer on its own documents and facts, not just on the promised rate or the issuer’s description.
- Issuer and use of proceeds: Identify the legal entity borrowing the money, what it does, and how it plans to use the funds.
- Repayment terms: Confirm the principal, interest calculation, payment schedule, maturity, and any prepayment conditions in the note itself.
- Default and collateral: Determine what counts as default, what remedies are available, whether collateral is actually pledged, and what priority the note has relative to other claims.
- Offering route and documents: Ask which exemption the issuer relies on, who is eligible to buy, and what offering materials or financial information support the claims being made.
- Ability to repay: Consider whether the company could make payments in a downside scenario, not only if its plans succeed.
- Exit and transfer: Check whether the note can be transferred and whether there is a realistic way to sell it before maturity.
The SEC flags high fixed returns, claims that an investment is “guaranteed” or insured, and broad sales approaches as potential warning signs in promissory-note fraud. These are reasons to verify the offer and ask difficult questions, not proof that every high-return or privately offered note is fraudulent (SEC investor guidance).
Rank #4
Why investors may not be able to exit early
Private securities are often illiquid and not freely tradeable. Securities rules and the note contract may both restrict resale, so an investor should not assume there will be a buyer—or permission to transfer the note—before it matures. The SEC’s overview of private secondary markets explains why a secondary sale is not equivalent to a readily available public market.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Other exempt fundraising routes
Private notes are one possible structure, not the only way a company may raise capital without a public registered bond sale. The SEC also describes Rule 504, Regulation Crowdfunding, and Regulation A as exempt-offering routes. They differ in eligibility, offering limits, solicitation rules, purchaser eligibility, disclosure and filing duties, use of an intermediary or platform, and potential investor liquidity. For example, the SEC’s overview states that Rule 504 permits up to $10 million in a 12-month period, subject to conditions; that is a regulatory cap, not an estimate of how much companies typically raise. Review the SEC’s exempt-offerings overview for the applicable route rather than assuming the rules for one exemption apply to another.
Quick Recap
Best Value
- It can be a gift option
- Comes with secure packaging
- Helpful in various ways
Product prices and availability are accurate as of the date/time indicated and are subject to change. Any price and availability information displayed on Amazon at the time of purchase will apply.
