PPM - Private Placement Memorandum - Explained
also called Placement Memorandum, Private Placement, Equity Placement, Reg D Offering, Private Stock Offering, 144a Private Placement and Offering Memorandum
What is a PPM - Private Placement Memorandum and why do I need to give it to every investor?
How do I prepare a PPM or Private Placement Memorandum?
Congress passed a Law to regulate the soliciting and taking of any and all investor money. This law was called The Securities & Exchange Act of 1933. However, compliance with the law was so difficult and expensive that individuals and small companies could not afford to raise capital. To remedy this problem, Congress amended the law and passed what is known as Regulation D. In Reg D, Congress said, if you comply with the requirements listed in Regulation D (Reg D) you will be “exempted” from the much more complex and expensive requirements that the SEC Act of 1933 imposes. The key to qualifying for this exemption is you must comply with Reg D. If you violate any of the Reg D requirements, you lose the exemption and thus you are in violation of Federal Securities Law.
To begin. Regulation D requires that you must provide each investor with “All Material Information” regarding their investment in your company. The information contained within the Placement Memorandum (.a.k.a. PPM) is the document you give each investor to comply with this Reg D requirement. A business plan is not a PPM, however, the information included within the business plan is included within the PPM. In the case of preparing your own PPM; you would typically copy and paste your business plan into the PPM Template section marked “Copy and Paste business plan here”.
Must you declare in the PPM if the Private Placement is pursuant to Rule 504, 505 or 506 - No
The rules that govern compliance requirements are based upon the amount of capital you intend to raise. They are not PPM specific. In other words, what determines whether a PPM is a 504 or 506 is the amount you indicate within the document. There is no specific wording required in the PPM document itself declaring that this is a Rule 504, 505 or 506 Exemption. However, we typically do declare within our documents whether it is a 504, 505 or 506.
Are PPM’s Industry specific – No
Each PPM will include a 1 line description of what your business does or will do. Examples: We manufacturer widgets. We buy and rehab real estate for resale at a profit. Etc. Note: You will be providing much more industry specific information within your business plan that you will be copying and pasting into the PPM. In our template document we have marked in red font those questions which must be answered such as the business description in addition to where to add the business plan. Once filled in you change the font color to black.
Regulation D also defines investor’s sophistication standards and the standards you must follow to solicit investors. For most, this is the really difficult part. We have a great deal of free information on the website to help you. If you decide to go forward, we then have a number of tools that will provide the basis of your being able to create a game plan.
Do you need an Attorney
For many, the hiring of an attorney is simply unaffordable. If you are not going to hire an attorney; you will find our 4 Audio Seminars on Raising Capital a very sophisticated learning tool.
Question: Call us at 239-300-9725 or use the Contact Form. Consultation is free