Requirement for Private Placement Memorandum
A Private Placement Memorandum (PPM) is a standardized legal document that contains the relevant background and financial information typically required to transfer private securities. As noted above, investors must reasonably be able to protect their own interests, and must have accessible to them all available information about an investment. The PPM includes an executive summary, risk factors, use of proceeds, shares of the company, shareholders agreement, stock incentive plan, principal shareholders, management and management compensation, method subscribing and how to subscribe, and additional relevant information. Perhaps most important, a PPM also includes the subscription agreement which is the actual sales contract for purchasing the securities. This document includes the signature of the potential investor and thereby commits them to the purchase of the securities. In this way a PPM is differentiated from a business plan which is typically not considered an offering of securities. Business plans typically include an executive summary, business concept, description of the business industry and venture, marketing plan, corporate structure, risk assessment, action plan, financial plan and statements, financing and capitalization, and references. PPMs and business plans have many similar components and often business plans either make up a substantial portion of a PPM or are attached in their entirety as an appendix. However, a PPM contains more relevant information for potential investors. A private placement memorandum should typically always be sought if a company plans on offering private securities. A sample table of contents for a Private Placement Memorandum Includes: