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Business Plan v. Private Placement Memorandum

The business plan and a private placement memorandum serve different functions. A business plan is a marketing document created to sell the company from a marketing point of view. It necessarily contains operational information, forward-looking statements, anticipated revenues, potential markets, information about partners, directors and also possibly financial projections of revenue and income. On the other hand, a private placement memorandum (PPM) is a full disclosure document presented in a format that is more factual, pessimistic, realistic and down-to-earth. It must contain all the bad news risk and potential downfall or liability of the company. It will include the list of competitors, an industry market analysis and a description of the management chain. It must list all possible scenarios involving the company that could go wrong. It must address the competition regardless of how gloomy the prospects of the competition or how sophisticated the competition.

You are automatically subject to the securities law if you are seeking investments in your company. Your offering memo must include full material disclosure. If you are found to have failed to make full disclosure in your offering memorandum it may be grounds for the investment to be rescinded. Furthermore, you could be held liable for the funds if it was your failure to make full disclosure.

We typically recommend that you paste your business plan within the PPM. However, you need to remove any statements from the Business Plan that are inappropriate for the document. Too often, included in the business plan are statements that change it from a business plan to an offering document. In these cases, adding a disclaimer doesn't mean you get a free pass. You still have made it an offering document. This includes statements such as the amount to be raised, what the deal is, exit strategy, pricing, etc. 

To begin with, let's make it clear that before accepting any money from an investor, any investor, you must provide the investor with a Private Placement Memorandum and Subscription Agreement. Assuming that your corporate organization is a limited liability company you will also need to provide them with an LLC Operating Agreement. However, the very first document you need to prepare is the business plan because the information in the plan will ultimately be incorporated and included in the Private Placement Memorandum.

Consultation Free 

Lance W. Shields  /  239-300-9725   

Shields Capital Partners 

3606 Enterprise Ave

Naples, FL  34104  This email address is being protected from spambots. You need JavaScript enabled to view it.  

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