What is Private Placement Memorandum Drafting?
A private placement memorandum (PPM) is a document that companies use to raise capital through the use of unregistered securities. It discloses all risks and terms of the investment so that parties’ interests are protected.
A PPM is offered to prospective investors in private securities offerings. This allows them to gain all the information they need to invest with confidence, so it must be drafted professionally and with transparency.
Here’s what a PPM includes and how to draft one, as well as how a qualified lawyer will help you with the drafting process.
Why is a Private Placement Memorandum Important?
A PPM serves important functions for both issuers and investors.
For issuers, a PPM offers legal protection by disclosing the investment details to investors. It minimizes the risk of disputes between investors and the company that can result in expensive litigation.
It’s also beneficial for investors, who will receive important information about the investment. When they’re aware of all details and risks involved, they’ll make informed decisions prior to investing.
What are Key Components in a Private Placement Memorandum?
There are various terms included in a private placement memorandum. These provide detailed information for both the company and investors to guide the investment process.
Executive Summary
This section provides a company overview and information about the business model. It also explains how much capital the company wants to raise with the investment.
Its purpose is to provide prospective investors with a clear understanding of the investment opportunity. It should be transparent so that you motivate them to want to learn more about it.
Offering Terms
The securities being offered to investors, including details about their price per share, must be clarified. All the investment’s financial and legal rules should be stated.
Some terms you’ll find in this section include the following:
- Investment minimums. How much capital the company is raising and the lowest amount an investor can invest serves as the groundwork for the investment.
- Fees and interest. This specifies how the fund manager is compensated and what management fees and interest is included. Management fees are yearly fees for the fund manager to manage the fund.
- Fund term. The duration of the fund is defined for clarity.
- Fund manager exit. If the principal fund member leaves the company, there should be information about what will happen to give investors security.
Use of Proceeds
How the fund is going to use capital raised by investors must be clearly explained to give investors the full picture of the investment, as they will want to know where their money is going.
Risks
There should be a section detailing all risks involved in the investment. It should be comprehensive so that investors know what they’re getting into before they commit money to the fund. When companies are open and honest about the risks, this enhances trust with investors.
Some common risks include market risks (such as economic downturns) and liquidity risks.
Subscription Procedures
To subscribe to the securities being offered, investors must complete the subscription agreement and transfer the required funds.
When is a Private Placement Memorandum Required?
A PPM is required for certain private offerings, especially if you’re raising capital under Rule 5506(b) and Rule 506(c) of Regulation D. Here are some instances when you should draft a PPM:
- Your company is raising capital from accredited investors. An accredited investor is SEC-authorized to invest in unregistered securities such as private equity. They have financial sophistication and ability.
- Your offering makes use of a significant investment and/or multiple investors.
- You want to reduce your risk of legal issues by providing disclosures to investors.
- You’re working with people, such as professional advisors, who request formal documentation of the offering.
Do You Need a Lawyer for Private Placement Memorandum Drafting?
It’s advisable to hire a lawyer to draft a private placement memorandum for you to ensure legal disclosure that complies with all securities laws. Here’s what a lawyer will do to help you through the drafting process.
- They’ll align the private offering with all securities laws, so that the offering meets all filing and disclosure requirements. This prevents penalties and investor disputes.
- They’ll protect the issuer from claims of omission or misrepresentation. This involves including risk factors.
- They’ll customize your deal structure and check that your PPM is in sync with other documents, such as your subscription agreements.
- They’ll ensure the PPM is drafted clearly and professionally, as poorly-drafted documents can reduce credibility.
Where to Find a Lawyer for Private Placement Memorandum Drafting
If you need to hire a lawyer to draft your private placement memorandum, you might not know where to find one within your network. Finding a lawyer doesn’t have to be a stressful process, as online legal platforms make it easier.
ContractsCounsel is one of the biggest online legal marketplaces that gives you access to a curated network of vetted lawyers. All lawyers have the expertise required for drafting and reviewing contracts.
To request that a qualified lawyer on the ContractsCounsel platform drafts your agreement, follow these easy steps.
1. Go to the ContractsCounsel marketplace and post your project for free.
2. Wait to receive lawyer bids. You’ll receive multiple bids from lawyers directly on the platform.
3. Review the lawyers' profiles to choose the most suitable one. The platform provides extensive lawyer data, such as their location, client ratings, years of experience, field of expertise, and previous projects completed on the platform.
4. Connect with a lawyer who matches your legal requirements and hire them for the task of drafting your private placement memorandum.
