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The following article was published in our article directory on May 2, 2012.
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PPM Tutorial - When Should You Use A Private Placement?

Article Category: Business

Author Name: Nick Jevic

To begin with, lets answer the question - exactly what is a Private Placement Memorandum?

A Private Placement Memorandum, or PPM is a document that is furnished to a prospective investors for the issuance of securities, which includes stocks, bonds and other investments designated as securities under the Securities law.

The PPM is a document the primary intention of which is to give the sponsor (the entity seeking to issue the security) the opportunity to present an investment opportunity and the potential risks associated to investors.

Although the PPM is a requirement under Securities Laws for the protection of the investor, the PPM also furnishes protection to the sponsor of the transaction in the event that the transaction goes south.

It is because of this that the sponsor will want to be sure that the PPM is complete as well as correct.

This is precisely why I firmly urge all of my clients to have a qualified securities lawyer or attorney examine their offering documents for accuracy, completeness and conformity with state and federal securities laws prior to hitting the streets.

The PPM incorporates information that is important for an investor in order to make a wise investment decision. This information will include information regarding the Issuer (the entity that is issuing the security) including:

* Disclosures and legends required under state and federal securities laws
* The security being offered and the terms of the offering
* Company information and structure of the company
* Risks associateded with both the company and the investment
* Details on the Issuer's company, operations, industry and markets
* Bios on the senior management
* Company financial information, both historical and forecasted * Cap table along with a sources & uses table

The PPM will also include a subscription agreement, which is a document which i) includes the investor's certification of their status as an accredited investor; and ii) is the purchase agreement for the security being offered.

So back to the initial question. When must someone put together a Private Placement Memorandum? Whenever you are raising capital, whether its for a real estate investment, the acquisition of a business or franchise, or a new business start-up. Because you will be providing your investor some type of document evidencing their investment - a stock certificate, a limited partnership interest, an LLC unit or a note - you are "issuing a security" and for that reason are subject to securities laws.

And the size of the offering does not make a difference. You should prepare and make a Private Placement Memorandum available whether you are seeking an investment of $ 50,000 or $ 5,000,000.

Keywords: private money, private placement memorandum, reg d, private placement

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