Offering Memorandum: Definition, Purpose, Key Terms
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What is an Offering Memorandum?
An offering memorandum, sometimes called a private placement memorandum, is a legal document issued to potential investors in a private placement deal. It states the deal terms and conditions of the investment opportunity including potential risks and liabilities.
An offering memorandum provides a potential investor with relevant information about a company like in depth financial statements, financial performance, management biographies, description of business operations, and any other information that will help an investor perform due diligence.
Generally, a business owner will hire an investment banker to draft the offering memorandum. The memorandum is a legally binding document and must adhere to the Securities and Exchange Commission (SEC) laws.
Purpose of an Offering Memorandum
The main purpose of an offering memorandum is for business owners of privately held companies to attract investors. The memorandum generates interest by allowing a potential investor to understand the risks, returns, operations, and capital structure of a business.
Offering Memorandum are often used for investment opportunities from:
- Exempt market dealers
- Private placement issuers
- Hedge funds
- Private equity firms
- Private capital firms
- Venture capital firms
- Private mortgage funds
The offering memorandum provides disclosures to the investor which is an important concept in investing. If an investor does not know all the facts about an investment opportunity, they cannot make a good decision about the investment.
Some information that should be disclosed in an offering memorandum includes:
- Management fees
- Investors’ voting rights
- Indebtedness of the business
- How the investment will be repaid
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Real Estate Offering Memorandums
Offering memorandums are used in real estate much like in any other investment opportunity. They are commonly used in apartment syndications and other types of commercial investments. The purpose of real estate offering memorandums is to secure investors to raise money to purchase property. Much like any other business plan, the offering memorandum will outline plans to increase property value and potential returns on investments.
Real estate offering memorandums will vary on format but should include the follow sections:
Section 1: Introduction
The introduction will include an overview of the investment opportunity, a description of the property, the minimum amount of capital required to invest, a date the offer expires, and all risks involved in the investment.
Section 2: Disclosures
Generally, there are three types of disclosures in a real estate offering memorandum.
- Sponsor Disclosure
The sponsor disclosure is proof that the sponsor is capable of entering the deal. This disclosure will include items such as the name and contact information of the sponsor and a list of fees and profits payable to the sponsor. It will also contain the sponsor’s background information including their deal history.
- Property Disclosure
The property disclosure contains information about the property. It will usually include estimated costs of projects, and revenue information. The property disclosure should also include the business owner’s plans for using the money raised in private placement.
- Risk Disclosure
The risk disclosure outlines any risks that an investor should be aware of. Some risks include environmental problems or market issues.
Section 3: Operating Agreement
The operating agreement outlines the structure of the proposed deal. It will state the roles and responsibilities of the sponsor and other investors who will be involved in the business plan. It should also contain the rights and roles of every party involved like level of ownership, termination plan, and requirements to transfer ownership.
Here is an article about Operating Agreements .
Section 4: Investment Summary
The investment summary is a large section of the offering memorandum that covers various subtopics which all have their own section and description. These subtopics include:
- Property description
- Investment opportunity
- Purchase price
- Total capitalization
- Preferred returns
- Manager/Sponsor
- Property/Asset manager
- Proposed structure
View some of our Real Estate Lawyers here .
Section 5: Subscription Agreement
The subscription agreement is a copy of the contract that would be signed should an investor agree to proceed with the deal. It should include all terms and how much ownership an investor would be entitled to.
For information on real estate appreciation, read this article.
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What’s Included in an Offering Memorandum
Every offering memorandum will be custom tailored depending on the investment, however each one must include certain detailed information to ensure the investors have all the information they need for due diligence.
Section 1: Introduction
The Introduction lays out the basic deal terms and offering. It will also provide the investor with some basic information about the company.
Section 2: Summary of Offering Terms
The summary of offering terms, or terms sheet, includes the capitalization of the company, liquidation preferences, conversion rights, voting rights and protective provisions for the investor.
Section 3: Risk Factors
This section will outline possible risks that an investor should be aware of before entering into the contract. Any risk that could impact the investor’s investment should be included in this section.
Section 4: Company Description
The company description should describe what the company does and provide a detailed history of the company including past performance and future goals. Also included in this section should be a description of the company’s competition, advertising strategy, intellectual property, and any other relevant information that an investor may be interested in.
Section 5: Use of Proceeds
Investors are generally interested in how their investment will be used. This section should describe how the company plans to use their funds.
Section 6: Description of Securities
A description of securities will outline the rights, restrictions and class of securities being offered to investors.
Section 7: Subscription Procedures
Subscription procedures are instructions for the investor about how to invest in the offering.
Section 8: Exhibits
In this section, the company can include any supplemental information that an investor may need to make an informed decision. Some examples of what may be included in exhibits are financial statements, shareholder agreements, and any licenses held by the company.
Here is an article that goes over a terms sheet .
Offering Memorandum vs Prospectus
An offering memorandum and a prospectus are very similar documents, however, while an offering memorandum is used for private placements, a prospectus is for publicly traded issues. A prospectus is used when a company is looking for public funds.
These documents share many similarities, and both serve as a detailed business plan to inform investors about their potential investment. Just like an offering memorandum, a prospectus will include terms of the offer, business structure, value, risks, and financial projections.
How to Make an Offering Memorandum
Generally, offering memorandum are drafted by an investment banker hired by the company. An effective offering memorandum should highlight your company’s strengths and provide all the relevant information an investor needs for due diligence.
Here are some things to consider when creating an offering memorandum:
- Readability - Design is important for an offering memorandum. Your document should be easy to read and aesthetically pleasing. Consider the font used, headings and subheadings, bolding key points, and utilizing bullet points for quick scanning.
- Imagery - Photos are especially important for a real estate offering memorandum. Be sure to include high quality professional photos to showcase your property to the investor.
- Writing Style - An offering memorandum is a business document and should be clear, concise, and direct. It needs to be able to be read and understood with ease. Eliminate “fluff” language, keep paragraphs short, and be sure that there are no grammatical errors.
- Call to Action - A clear call to action will encourage your potential investors to take the next step forward in the deal.
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Triple Qualified New York Attorney, Australian Lawyer & Enrolled NZ Barrister & Solicitor
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Michael M.
www.linkedin/in/michaelbmiller I am an experienced contracts professional having practiced nearly 3 decades in the areas of corporate, mergers and acquisitions, technology, start-up, intellectual property, real estate, employment law as well as informal dispute resolution. I enjoy providing a cost effective, high quality, timely solution with patience and empathy regarding client needs. I graduated from NYU Law School and attended Rutgers College and the London School of Economics as an undergraduate. I have worked at top Wall Street firms, top regional firms and have long term experience in my own practice. I would welcome the opportunity to be of service to you as a trusted fiduciary. In 2022 and 2023, I was the top ranked attorney on the Contract Counsel site based upon number of clients, quality of work and number of 5 Star reviews.
"Michael was great! I'm glad I was able to seek his legal advice before committing to a large investment."
Garrett M.
Attorney Garrett Mayleben's practice is focused on representing small businesses and the working people that make them profitable. He represents companies in structuring and negotiating merger, acquisition, and real estate transactions; guides emerging companies through the startup phase; and consults with business owners on corporate governance matters. Garrett also practices in employment law, copyright and trademark law, and civil litigation. Though industry agnostic, Garrett has particular experience representing medical, dental, veterinary, and chiropractic practices in various business transactions, transitions, and the structuring of related management service organizations (MSOs).
"Though I found a few small mistakes that made me think he rushed a bit, he revised the agreement to be more in my favor. His expertise was well worth it."
Jane C.
Skilled in the details of complex corporate transactions, I have 15 years experience working with entrepreneurs and businesses to plan and grow for the future. Clients trust me because of the practical guided advice I provide. No deal is too small or complex for me to handle.
"Jane was fantastic. She caught real gaps and fixed everything quickly and accurately. Highly recommend!"
Morgan S.
Corporate Attorney that represents startups, businesses, investors, VC/PE doing business throughout the country. Representing in a range of matters from formation to regulatory compliance to financings to exit. Have a practice that represents both domestic and foreign startups, businesses, and entrepreneurs. Along with VC, Private Equity, and investors.
"Morgan delivered far beyond the price point. He didn't just review our investor package — he caught gaps two other reviewers missed (including a top-tier venture firm we benchmarked him against), rebuilt the custom documents to professional standard, and added missing closing mechanics we didn't even know we needed: the 83(b) election, escrow instructions, stock assignment. He pushed back on his own client when the documents said otherwise — that's the lawyer you want. §144 analysis citing the 2025 Delaware reform, triple anti-broker-dealer protections, a related-party ARR cap he invented on his own — depth you'd expect at five times the fee, closed out with a proper written memo on firm letterhead. The timeline ran a bit longer than planned in places, but the result was more than worth it: every item closed, every question answered, the whole package consistent and ready to sign. Very happy overall — would hire again, and our next project is already queued."
Daliah S.
Daliah Saper operates a cutting-edge internet and social media law practice that regularly leads local and national media outlets to solicit her commentary on emerging internet law issues involving cyberbullying, sexting, catfishing, revenge porn, anonymous online defamation, domain name and user-name squatting, privacy, and the latest business decisions made by social media platforms such as Facebook, Twitter and YouTube. As a litigator Daliah represents companies bringing or defending business and intellectual property disputes. (She has argued cases in a number of jurisdictions including taking a case all the way to the Illinois Supreme Court.) As a transactional lawyer she helps clients choose the right business entity, drafts contracts and licensing agreements, advises on sweepstakes and contest rules, and ensures website terms of use and privacy policies are compliant, and provides comprehensive trademark and copyright counseling. Since founding Saper Law Offices in 2005, Daliah has been named a 40 Under 40 by Law Bulletin Publishing Co., a top Media & Advertising attorney by Super Lawyers Magazine 14 years in a row, and has been repeatedly recognized as a leading media and entertainment lawyer by Chambers and Partners. For the past eleven years, she also has taught entertainment and social media law at Loyola University Chicago School of Law.
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Mr. Mehdipour attended the University of California San Diego where he received his degree in political science. After graduating from UCSD, Mr. Mehdipour attended Southwestern University School of Law where he received his JD. Upon passing the bar, Mr. Mehdipour gained invaluable experience both in a law firm and business setting. Mr. Mehdipour uses his prior business and legal experiences to negotiate the most advantageous results for his clients.
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Securities
Offering Memorandum
New York
Can a company be exempt from filing SEC reports if it meets certain criteria?
I am currently researching the requirements for SEC reporting and I came across the concept of exemptions. I understand that certain companies, such as small businesses, may be exempt from filing SEC reports if they meet certain criteria. However, I am unsure about the specifics of these exemptions and the criteria that need to be met. I would like to know if a company can be exempt from filing SEC reports and what these criteria might be.
Danny J.
So to answer your question, yes, certain companies can be exempt from filing SEC reports if they meet specific criteria. This area of securities law is nuanced and can significantly impact a company's regulatory obligations and costs. Let me outline some key points for you: 1. **Small Reporting Company (SRC) Status:** - Companies with public float less than $250 million or annual revenues less than $100 million may qualify for scaled disclosure requirements. 2. **Emerging Growth Company (EGC) Status:** - Available for companies with less than $1.07 billion in annual gross revenues. - Provides certain disclosure and regulatory relief for up to five years after IPO. 3. **Private Company Exemptions:** - Companies with fewer than 2,000 shareholders of record (or 500 non-accredited investors) may be exempt from registration. 4. **Foreign Private Issuer Exemptions:** - Non-U.S. companies may have different reporting requirements. 5. **Rule 12h-3 Suspension:** - Allows suspension of reporting under certain conditions, like having fewer than 300 shareholders of record. While these exemptions can provide relief from full SEC reporting requirements, determining eligibility and maintaining compliance can be complex. Factors such as company size, structure, shareholder composition, and future growth plans all play crucial roles in this determination. It's important to note that even if exempt from full reporting, companies may still have obligations under state securities laws or to their shareholders. Additionally, the benefits of exemption should be weighed against potential drawbacks, such as reduced access to capital markets or decreased investor confidence. Given the complexities and potential consequences of misapplying these exemptions, it would be prudent to conduct a thorough analysis of your specific situation. Would you like to discuss your company's particulars to determine which exemptions, if any, might apply and how to strategically approach your SEC reporting obligations?
Securities Law Compliance
Offering Memorandum
California
Can an Offering Memorandum be used for fundraising in a startup?
I am a co-founder of a startup and we are planning to raise funds from accredited investors. We have heard about Offering Memorandums being used for fundraising, but we are unsure if this is applicable to our situation. We want to know if it is legally permissible to use an Offering Memorandum for fundraising in a startup, and if so, what are the key requirements and considerations we should be aware of.
Christopher N.
Your question does not have a quick or answer, and is highly dependent the very specific facts of your company, your industry, and potential investors, but, the short answer is: yes. The offering memorandum is just that: a (non-binding) offer to sell securities in your company. There are other documents that will have to be prepared if an investor agrees to fund you. Those documents and the underlying "advertising" for the sale of those securities are, as you likely know, very strictly regulated by the SEC and California (under the Blue Sky rules). Run afoul of them to your detriment and you may need very expensive attorneys. We highly recommend you consult with experienced securities attorneys who can help you craft the offering memo, subscription agreements, etc. to address the issues specific to your company and potential investors. Perhaps not the full answer you are looking for, but hopefully a wise note of caution.
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