Private Placement Memorandum Cost

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What does a private placement memorandum cost? Companies in search of potential investors may ask this question. Let’s explore private placement memorandum costs and review some general information about private placement memorandums and how they are used.

How Much Does a Private Placement Memorandum Cost?

A private placement memorandum, often abbreviated as PPM and sometimes called an offering memorandum, is a legal financial document that businesses use to attract potential investors to their company.

A PPM is used in private transactions when securities are sold using an exemption from registration. The purpose of the private placement memorandum is to provide the investor with information about the company like:

  • Company description
  • Terms of the offering
  • Risks of investment
  • How the investment will be used

Private placement memorandums provide a company with many benefits and are often used by smaller startup companies to raise capital quickly. When using a PPM and engaging in a private transaction, the issuer is not subject to SEC (US Securities and Exchange Commission) regulations.

Using offering memorandums or PPMs also afford companies these additional benefits:

  • Lower costs
  • Confidentiality
  • Access to a large pool of investors
  • Stability of a private placement market
  • Flexibility

If your company is considering using a private placement memorandum, it is recommended you consult with an attorney knowledgeable in this area of law.

Private placement memorandums vary depending on the exemption from registration used, the target investors, and the complexity of the offering terms. A private placement memorandum must also comply with the conditions set out by the Securities Act of 1993.

An attorney who has experience with private placement memorandums will know what your PPM must include based on the factors surrounding the offering and ensure that the PPM abides by all applicable laws.

According to ContractsCounsel’s marketplace data, the average cost of a project involving a private placement memorandum is $1,150.

What’s Typically Included in a Private Placement Memorandum

Private placement memorandums will vary depending on several factors like type of exemption, potential investors, and terms of the offering. However, most PPMs will follow this basic structure:

  • Investors’ Notice. The beginning of the PPM should inform investors about the important disclosures included in the private placement memorandum. This could include the degree of risk, restrictions on securities transfer, and company rights. It is common to follow these disclosures with current SEC rules and regulations.
  • Executive summary. This section is a letter to the investors that summarizes private placement memorandum but is also used to grab the attention and interest of investors. It is important to keep this section concise, so it is memorable. Consider sharing the top three points your investors need to know.
  • Offering Terms Summery. The offering terms are usually drafted in the form of a term sheet. It should include the capitalization of the company before and after the offering. Other terms you may find in a PPM
  • Risk Factors. Every investment comes with risks and the investor will expect to see these risks laid out in the PPM. The private placement memorandum can include common general risks, and risks that may be unique to the issuer and its securities.
  • Company and Management Description. It is common for an investor to want some background information on the company they are planning to invest with. This section allows the company to share their history, the products and services they offer, their performance history, future goals, competition, advertising and marketing strategy, and any other material information an investor may want to know.
  • Use of Proceeds. The private placement memorandum must include how the company plans to use the net proceeds raised by the offering. If the proceeds will be used for more than one purpose, the amount intended for each purpose should be recorded.
  • Description of Securities. This section describes the rights, restrictions, and class of securities offered.
  • Subscription Procedures. Subscription procedures are the instructions for investing in the offering.
  • Exhibits. Exhibits are any supplemental information and documents the company may want to provide investors. Some examples of exhibits are copies of investment contracts, financial statements, the company’s organizational documents and licenses.

Private placement memorandums can be customized to fit the needs of the issuing company. It is important to discuss additional terms with your attorney. A lawyer experienced in drafting private placement memorandums will know what your PPM needs to include to entice investors and be legally accurate.

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Examples of Private Placement Memorandum Projects

Private Placement Memorandum Drafting Service

Private placement memorandums are important legal documents. They can be the difference between a startup gaining investors or losing potential funding. For this reason, companies who wish to use private placement memorandums should hire an attorney for drafting services.

If you hire a lawyer to draft your private placement memorandums, first you will meet with the lawyer to discuss your business and the terms you want in the PPM. Using this information, the lawyer will draft a private placement memorandum that adheres to all legal regulations that your company can use with potential investors.

Private Placement Memorandum Review Service

Sometimes, a company may have an existing private placement memorandum but due to changes in the company or target investor, the memorandum needs to be changed or updated.

Instead of hiring a lawyer to draft a completely new private placement memorandum, a company can hire a lawyer for review services. A lawyer can read over the memorandum and suggest changes and updates to fit the company’s needs.

Drafting Private Placement Memorandum Costs

Hiring a lawyer to draft a non-compete agreement will come with costs. The lawyer will charge for any time spent working on the private placement memorandum which can include consultations and revisions.

ContractsCounsel’s marketplace data shows the average private placement memorandum drafting costs are $3,328 across all states and industries.

Private Placement Memorandum Review Costs

Review services will also incur legal fees because the lawyer will use their time and legal expertise to ensure the private placement memorandum includes all necessary provisions.

According to ContractsCounsel’s marketplace data the average private placement memorandum review costs are $800 across all states and industries.

How Do Lawyers Charge for Private Placement Memorandums?

The two most common fee structures used by lawyers are hourly rates and flat fee rates.

Hourly Rates for Private Placement Memorandums

Hourly rate fee structures are one of the most common fee structures used by attorneys across all industries. When billing at an hourly rate, a lawyer will charge their client at a fixed hourly rate for all work done on the case or project.

The marketplace data for ContractsCounsel shows the average hourly rate for a private placement memorandum lawyer ranges from $250 - $400 per hour.

Flat Fee Rates for Private Placement Memorandums

When a lawyer is hired for a specific task like drafting a private placement memorandum, they may choose to charge a client using a flat fee rate. In a flat fee payment structure, attorneys will provide a flat fee price to the client for the proposed services.

One benefit of flat fee rates is that the client knows upfront how much legal services will cost and will never be surprised by a large bill at the conclusion of a case or legal project.

ContractsCounsel's marketplace data shows the average flat fee rate for a private placement memorandum is $1,150.

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