They may be qualified on the basis of their ability to understand risk. They may be qualified on the basis of a personal relationship to the issuer or a promoter. However, the view that either the sophistication or the wealth of the offerees, without access to information, is sufficient to establish the exemption has been widely rejected. Manner and Size of the Offering - A proper private placement relates to the manner of offering. In general, the offering should be made through direct communication with qualified offerees or their representatives.
Public advertising is incompatible with a claim of a private offering.
It is the offerees ability to understand the investment and the risk involved which is of issue, not the purchaser's ability to understand the investment and risk involved. Public advertising in any form will reach unsophisticated investors and persons that do not have access to the type of information found in a registration statement, and therefore all forms of general advertising and mass media circulation are forbidden. The size of the offering may also raise questions as to the probability that the offering will be completed within the strict confines of the exemption. This element is tied to the need for the protection of the investor and disclosure. If the offerees are directors or officers of the company they are more than likely exempt.