Private Placement Memorandum

Although the firm is currently not providing any securities services, we would be happy to help you find a qualified attorney in this area of law.  However, a good overview of what to expect is important.  Furthermore, we can help you prepare the business plans, financial projections, articles of incorporation, shareholder agreements, and other documents which might be useful in the preparation of the PPM.

What is a Private Placement Memorandum?

The Private Placement Memorandum (PPM) is the document that discloses everything the investor needs to know to make an informed investment decision prior to investing in an SEC Regulation D Offering.  Private Placements or Private Stock Offerings are “private” equity/debt transactions and are considerably less expensive to complete than an initial public offering such as an IPO (for the purpose of raising capital).  Unlike a Business Plan the PPM details the investment opportunity, disclaims legal liabilities and explains the risk of losses.  The PPM is important because it provides the investor with all of the prescribed data they will need to make an investment decision and includes the actual documentation to effect the investment transaction.

What Should be Included in a Private Placement Memorandum?

A PPM provides the offering structure, the share structure of the company, SEC disclosures about the shares being purchased, company information, information on company operations, risks involved with the investment, management information, use of proceeds, information on certain transactions that could affect the investor, and investor suitability data. A typical PPM will include at least the following sections:

• IMPORTANT NOTICES
• DISCLAIMERS
• JURISDICTIONAL (NASAA) LEGENDS
• SUMMARY OF THE OFFERING
• THE COMPANY
• MANAGEMENT
• TERMS OF THE OFFERING
• PLAN OF DISTRIBUTION
• DESCRIPTION OF SECURITIES
• USE OF PROCEEDS
• CAPITALIZATION STATEMENT
• MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• FIDUCIARY RESPONSIBILITIES OF THE DIRECTORS AND OFFICERS OF THE COMPANY
• RISK FACTORS
• PRINCIPAL SHAREHOLDERS
• HOW TO INVEST
• INVESTOR SUITABILITY REQUIREMENTS
• LITIGATION
• FORECASTS OF FUTURE OPERATING RESULTS

The Private Placement Memorandum also includes the Subscription Agreement which is the actual “sales contract” for the shares of stock being placed. This is the document that the investor will sign and send in with their investment capital.  The Subscription Agreement is the “buy” document executed by the investor and returned to the Company.  Attached to this document is the Investor Questionnaire; which establishes the investor sophistication and accredited status.

Just as the PPM provides disclosure to the client regarding the company’s financial status, the Subscription Agreement provides full disclosure to the company regarding the investor’s financial status. In the Subscription Agreement the investor provides assurances to the issuing company that an absolute loss of their investment capital will in no way impact their standard of living or jeopardize their financial picture as a whole.  These qualified investors are typically referred to as “accredited investors.”

Other Documents and Attachments

Many companies will attach their business plan, financial statements, articles of incorporation and other documents, to the PPM as supporting documentation. This is an acceptable practice so long as the information in the business plan properly corresponds with the information in the PPM and that the investor is made aware that the business plan alone does not constitute an offer to sell securities – only the PPM can make that offer.  Although we currently do not offer services related to drafting or harmonizing the PPM with these other documents, we can help you create the other supporting documents prior to your engagement of a securities attorney to create the PPM.