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.
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.