A private placement memorandum (PPM) is a document valuable to both the issuer and the investor. Every PPM needs to contain certain detailed information about the offering. Since drafting a PPM can be very complex, you may wonder whether you need it.
Technically speaking, a PPM is required if you create an offering for non-accredited investors using Rule 506(b).
However, just because a PPM isn’t always legally required doesn’t mean it’s not desirable. Presenting all information regarding an offering is something every investor will appreciate. Not having a PPM could deter many investors, as they won’t have all investment risks and outcomes outlined.
If you want to create an informative PPM, it’s best to work with a real estate syndication attorney to prepare the necessary Regulation D materials such as the private placement memorandum, operating agreements, etc.
What is a Private Placement Memorandum?
The first question that needs to be answered is what is a private placement memorandum? A private placement memorandum (PPM, also known as an offering document or private placement offering memorandum) is a vital legal document that contains all information regarding an offering. It’s most commonly used for selling securities or raising capital.
A PPM is usually drafted by a real estate syndication attorney and discloses information about the industry, the issuer’s business, plans, terms of the offering, financials, taxation, etc. This document also contains information about potential risks and how to avoid them. Essentially, everything an investor needs to know before deciding to invest can be found in the PPM.
Although it shares some of the features, a PPM isn’t the same as a summary prospectus or a business plan.
Private Placement Memorandum Checklists
It is often helpful to have a checklist for private placement memorandums. Every PPM needs to have these key elements:
- Summary – Contains information about the business, structure, investment terms, etc.
- Company overview – Contains detailed information about the company and its operation, mission, marketing plan, etc.
- Terms of the offering – Contains information about the investment, requirements, and rights.
- Risk assessment – Contains information about the potential risks.
- Proposed use of proceeds – Contains information about the spending strategy and potential expenses.
- Profit distribution – Contains a detailed description of the profit payment structure.
- Financials – Contains relevant financial information about the company in question.
- Management plan – Contains information about every individual in your company and third-party businesses related to the offering.
- Taxation and other legal matters – Contains information about tax policies, taxation brackets, incentives, and exemptions.
Why Do I Need a Private Placement Memorandum?
Since private placement memorandums (PPMs) aren’t mandatory for every Reg D offering, one can’t help but wonder what their purpose is. Why do you need a private placement memorandum? Well, these documents contain valuable information about your offering and serve as a form of assurance for potential investors. If you don’t have a PPM, an investor may think you’re not serious, or you’re trying to scam them. Most investors won’t trust you with their money if they don’t have all the information disclosed in a PPM.
Moreover, having a PPM can also help you in case something goes wrong along the way. Since this document contains information about potential risks and costs, it can help you avoid misunderstandings with your investors.
Why Do I Need a Lawyer for a Private Placement Memorandum?
A PPM is a document that could attract or deter investors from your offering. Since it contains detailed information about your offering, it isn’t something you can craft easily. There are many legal regulations you need to follow to create a proper PPM. Withholding any information from potential investors could result in lawsuits that could ruin your hard work and reputation.
If you want to avoid these risks, have peace of mind, and prove your capability to investors, it’s best to hire a real estate syndication attorney to prepare your Regulation D private placement memorandum. They are familiar with all relevant federal and state laws and can help you create an informative PPM that will attract investors.
Tilden Moschetti, Esq., is a highly sought-after syndication attorney with nearly two decades of experience. His clientele ranges from real estate developers and startups to established businesses and private equity funds. Tilden’s expertise in syndication law comes not only from his knowledge of syndication and securities law but from real, hands-on experience as an active syndicator himself in every real estate product type and nearly all markets in the US. His knowledge and experience set him apart and established him as the Reg D legal services leader.