Private Placement Memorandum (PPM)

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If a company is issuing securities in a small offering only to accredited investors, it
may be appropriate to use a beefed up business plan that includes risk factors and allows
investors to request additional company records and to ask questions of management. In a large
offering or one being offered to non-accredited investors, however, a well-drafted PPM is well
worth the cost.

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Private Placement Memorandum (PPM)

  1. 1. http://biztaxbuzz.com/private-placement-memorandum-ppm/ May 21, 2013Private Placement Memorandum (PPM) | BizTaxBuzz byTrevor Crow3rdAprilPrivate Placement Memorandum (PPM)Posted by Trevor CrowDo I need a Private Placement Memorandum (PPM) to Sell Securities?Private placement memorandums (or PPMs) are disclosure documents typically used in connectionwith the sale of securities in a private offering. A PPM will describe the offering terms, overview ofthe business of the company issuing securities (i.e. business plan, management, employees,description of assets, and financial statements), industry, market, competition, use of theproceeds and risk factors involved in an investment with the company. An example PPM table ofcontents is below:TABLE OF CONTENTSSummary…………………………………………………………………………….. 1Risk Factors ……………………………………………………………………….. 6Use of Proceeds …………………………………………………………………. 11Capitalization…………………………………………………………………….. 12Dilution…………………………………………………………………………….. 13Selected Financial Data ……………………………………………………… 17Management’s Discussion and Analysis of Financial Condition and Results of Operations…………………………………………………………. 18Business……………………………………………………………………………. 19Management……………………………………………………………………… 22Certain Transactions…………………………………………………………… 24Principal Stockholders………………………………………………………… 26Description of Securities……………………………………………………… 28Terms of the Offering…………………………………………………………. 29Legal Matters…………………………………………………………………….. 30Experts……………………………………………………………………………… 31
  2. 2. Additional Information……………………………………………………….. 33A PPM is considered the main disclosure document for a private offering of securities. However,many private placements are consummated without a PPM. A well-written PPM is a balancebetween a sales document that is appealing to potential investors and a compliance documentthat follows the applicable securities laws and protects the issuer from potential lawsuits orregulatory actions. A mistake in the preparation of the PPM can subject the company to lawsuitsfrom investors, and may result in civil or criminal sanctions from state and federal securitiesregulators. Here is a list of the benefits and costs of PPMs.BenefitsIf the offering includes the sale of securities to unaccredited investors, certainexemptions under the federal securities laws require that companies provide certaindisclosures. Thus, a PPM disclosure document is needed to meet the requirements forthe exemption from registration.A PPM provides a written record of what was presented to investors. A PPM can helpavoid liability for material misstatements or omissions under the antifraud provisions ofstate or federal securities law.CostsA PPM is expensive to prepare. A PPM is generally produced through collaboration ofmanagement, lawyers, and accountants and requires many hours to complete.Many private securities offerings are done with little or no disclosure documentation and as aresult lower costs. However, a properly prepared PPM can serve as a quasi-insurance policy toprotect the company from potential lawsuits and regulatory actions. While a PPM is an expensivedocument to produce it may save the company thousands of dollars in the long run.Bottom Line. If a company is issuing securities in a small offering only to accredited investors, itmay be appropriate to use a beefed up business plan that includes risk factors and allowsinvestors to request additional company records and to ask questions of management. In a largeoffering or one being offered to non-accredited investors, however, a well-drafted PPM is wellworth the cost.

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