PPMs are disclosure documents used by small businesses raising money through private securities transactions. A private placement memorandum (PPM) is a legal document provided to prospective investors when selling stock or another security in a business. It is sometimes referred to as an offering memorandum or offering document. A private placement memorandum may also be called an offering memorandum (OM), confidential offering memorandum (COM) or confidential information memorandum (CIM). A PPM is similar to a business plan, although it focuses much more on legal issues. The primary purpose of a PPM is to disclose to prospective investors the terms of a potential investment and primary risk factors involved in making the investment. A PPM also usually contains a considerable amount of information about the business opportunity, structure and management. It is less sales-oriented than a traditional business plan, partly because business lawyers typically create them. A PPM is used in “private” transactions when the securities are not registered under applicable federal or state law, but rather sold using one of the exemptions from registration. The PPM describes the company selling the securities, the terms of the offering, and the risks of the investment, amongst other things. The disclosures included in the PPM vary depending on which exemption from registration is being used, the target investors, and the complexity of the terms of the offering. A PPM must contain accurate, truthful and current information. While many PPMs share some similarities, they are all completely customized and unique to each investment deal. For example, a well-prepared PPM will avoid using formulaic risk factors. Instead, they will detail the specific risks associated with the company’s industry, such as market trends, competitive analysis, or regulatory and tax issues. In addition, a well-prepared PPM will avoid sales/revenue projections, especially overinflated ones, that are not based on expected reality and that are the exception. Investors will likely expect you to achieve those financial targets, and the SEC will closely scrutinize such performance forecasts set out in the PPM. Whether a company needs to use a PPM or not, and the amount and type of information in the PPM, will, in general, depend on; All security transactions are subject to the anti-fraud provisions of the federal Securities Laws – meaning you cannot make false or misleading statements regarding the company, the securities offered, or the offering. The basic notion behind the PPM is to fully inform the prospective investor about all aspects of the business, management, prior financial performance, and future prospects, as well as the risks involved. Some business owners worry about filling up the document with too much “legalese.” However, if the company is engaging with experienced investors they will be familiar with these disclosures and in many cases will expect it as a reflection of the professionalism of the business. Although applicable law may allow for different disclosure requirements based on a variety of factors, best practice for PPMs dictates certain information disclosures even if not required. Most PPMs are drafted in a similar format. Here is a summary of typical components found in a PPM. Types of Private Placement Memorandums • Tax Implications: the tax section of the private placement memorandum will detail the implications for an investor. Most PPMs will not detail the specific state tax requirements so each investor would be required to speak with their local accountant. For international clients, non-US (or not from the country of one’s offering), the tax implication will be important for profit and loss and each country will have their own rules. PPM LawyerWhen you need a PPM Attorney, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
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