Private Placement Memorandum
If you are trying to raise capital for your business by offering debt or equity to angel investors, private investors, hedge funds, venture capital or a commercial funding company you probably need a Private Placement Memorandum (PPM). This investment tool takes advantage of the SEC Regulation D exemption rules 504, 505 and 506.
A PPM allows a company to raise unlimited capital with a structure that is legal and recognized by the Securities and Exchange Commission (SEC) and other Securities Government Organizations.
What is a Private Placement Memorandum?
The disclosure document commonly used in private offerings is called a Private Placement Memorandum or Private Offering Prospectus. The memorandum is similar to a business plan, except that the emphasis is on the disclosure of facts rather than projected results. This document should be professional prepared and legal counsel should be consulted for a final review.
A Private Placement Memorandum typically includes a discussion of the terms of the offering, the allocation of proceeds and the risk factors inherent in the business and industry. In general, the memorandum must contain all information about the company, its business, and the securities offered, that would be considered “material” by a potential investor.
The Private Placement Memorandum is accompanied by a Subscription Agreement and Investor Questionnaire. The Subscription Agreement is a contract to purchase a specified amount of securities at an agreed price, and contains a statement that the investor has received and reviewed the Private Placement Memorandum, is aware of the risk factors and is a suitable investor. The Investor Questionnaire elicits information about the investor’s background, employment and investment or business experience. It is used in part to confirm the investor’s accreditation and sophistication.