Private Placement Memorandum | Tressler & Associates
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Private Placement Memorandum

Private Placement Memorandum

As your business grows, you’ll notice that many actions you and other shareholders can take involve a lot of paperwork. One action, such as selling stock or business security, entails various documents for what appears to be a simple transaction. There’s paperwork to detail the contents of the deal, what it means to hold stock in the company, and what this means for other shareholders. A private placement memorandum (PPM) is given to prospective investors when a shareholder or business is looking to sell stock.

Even before an entity agrees to buy or sell anything, a PPM is given to those considering investing. The PPM works to attract and convince outside entities to become investors, as it informs them of the company’s investment vehicle. This can resemble a thorough business plan.

A PPM is usually completed by a non-banking financial and law institution. Consider your accountants and attorneys. You need both to produce an accurate, thorough, and legally protective PPM that will bolster your company’s potential future of investments. The Nashville entrepreneurial law attorneys at Tressler & Associates can fill the legal role required to complete a PPM.

What Should be in a Private Placement Memorandum?

While a PPM needs to include useful information for potential investors, you need to ensure it isn’t giving away anything that only current shareholders should know. All security and share transactions are subject to federal securities laws, so it’s important to make sure that every state is true, honest, and not misleading. To make sure of this, a PPM needs to include:

  1. Opening Statements: Because a PPM is not a short document, the introduction should define and break down all the basic industry, legal, and financial terms of the document. This should also include your business’s core services/products, and “legends” required by federal and state laws.
  2. Summary Offering Terms: Documents like shareholder agreements and founder agreements may set rules that restrict who can buy shares and how many. Any such restrictions should be detailed as liquidation preferences, conversion rights, anti-dilution provisions, voting rights, and anything that doesn’t fall under these descriptions would need special consideration.
  3. Risk Factors: To avoid being accused of misleading potential investors, this section must describe the potential risks an investor incurs. This includes general risks common in your industry and risks unique to potential investors of your business. Examples of risk can be your company’s small number of staff, significant competition in the field, or a dependence on a partnership with another company.
  4. Breakdown of Company & Management: An investor needs to know your business’s structure, performance history, industry, goals, competition, current advertising and marketing efforts, suppliers/partners, significant intellectual property, consumer base/target audience, and most importantly, your business’s product or service. You should also include information about your management team’s abilities and background information if applicable.
  5. Use of Investment: Explain how the business intends to use the investments they receive, along with the net proceeds they garner. This includes strategies, time frames, and budgets. The business does not have to complete them in accordance with the PPM but has to show its intention to try.
  6. Description of Shares/Securities: Descriptions of the rights an investor would gain by making an investment in the business.
  7. Ability to Evolve: The potential investor must know how the current structure allows for the business to change. This includes how it can redefine the classes of shares it offers, how it distributes company dividends, and how it is preparing to take on more investors as the business grows.
  8. Investing Instructions: How an investor can go about completing an investment in your business.
  9. Additional Documents: Because there are always more documents that need to be written, signed, or tracked, things like investment contracts, financial statements, organizational documents, key contracts, and licenses should also be included in the business’s PPM.

Is a PPM the Same as a Business Plan?

Commonly mistaken for private placement memorandum, business plans are marketing documents that promote the business primarily to consumers. Investors can become interested in investing in your business after being exposed to a business plan, but they would still need a PPM.

PPMs are also not meant to be persuasive like a business plan is. PPMs and business plans should both disclose topics like marketing demand, customer profiles, growth opportunities, and competition, but not in the same way.

If your PPM isn’t factual and concrete as it breaks down all the external and internal risks your company faces, the PPM is not well-drafted, and borders on being a business plan. To assure that this doesn’t happen, you need a proper and experienced entrepreneurial law attorney to be a part of the writing process.

Contact the Entrepreneurial Law Attorneys at Tressler & Associates

There’s too much that goes into a private placement memorandum to not have experienced lawyers involved in their creation. Should anything be missing or input incorrectly, your business may not only see the loss of a potential investor but trouble with state and federal courts.

With the legal representation of Tressler & Associates’ entrepreneurial law attorneys, your PPMs will be safe and secure to give to potential investors. Contact our Nashville law firm to assure your business’s future success.


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