What Is A Private Placement Memorandum? How And When Are They Used?
One way to get more information about a company is to request a private placement memorandum (PPM). This document can help potential investors determine if an investment decision suits them and explains the terms and critical risk factors involved. If you’re considering using a private placement memorandum to inform potential investors, it’s essential to do your research and understand the potential risks involved. However, remember that every situation is different, so it’s always best to consult with an experienced private placement attorney before making any final decisions.
A PPM is used in “private” transactions when the securities are not registered with the SEC or state law. Instead, they are sold using an exemption from registration. Investors should review a PPM carefully before making any decision to invest.
PPMs have a few potential drawbacks that business owners should be aware of before moving forward. For starters, there may be reduced market interest in the bonds or shares associated with your business, which could negatively affect the business’s overall value over time. The bonds or shares will also likely need to be offered at a substantial discount to incentivize people to invest despite the greater risk and longer-term returns.
If you require guidance setting up your PPM, consulting with a private placement memorandum drafting lawyer is critical to ensure that a PPM is the right option for you and your goals.
What Information Is Included In A Private Placement Memorandum?
A PPM (private placement memorandum) is generally divided into several main categories. The introduction outlines the terms with a brief statement on the business. Following the introduction, a summary of terms establishing preferences and provisions for the potential investor.
Overall, a PPM document usually provides a complete description of the security being offered, a list of risk factors associated with the investment, information on fees, the company’s capital structure, a record of past financial statements, and the management team’s experience.
Do I Need A Private Placement Memorandum To Raise Investment Capital?
A PPM, or private placement memorandum, is not always required to raise investment capital. However, it is advisable to have one in most cases, even if it is not technically required. For example, a PPM is not needed for Rule 506(b) offers made to accredited investors. Still, a PPM provides potential investors with important information about the company and the investment offered.
At David Hunt, P.C, we are dedicated to helping companies and business owners in Salt Lake City, UT, with all their private placement drafting needs. For a consultation on the best direction to raise investment capital, contact our office to schedule an appointment at your convenience.