As the Private Placement Memorandum Attorney, I often get the question, “Why do I need a private placement memorandum? Can’t I get away with a simple term sheet? Especially if I try to raise capital from only accredited investors?”. To answer that question I usually respond: “Who is likely to have more resources to sue and come after you in case your deal goes south? A non-accredited investor or an accredited (higher net worth) investor?”. Typically they respond, “Well, I suppose the higher net worth investor.” I then say, “You are absolutely correct.” If the venture is successful and everyone makes money, then no one is likely to complain or sue. But if things don’t turn out so well, much like an insurance policy, your private placement memorandum, or “PPM” for short, is your first and primary line of defense. A “Private Placement Offering” generally refers to a non-public offering of securities sold to investors. Your PPM is the disclosure document you provide to investors in connection with such an offering. To comply with the anti-fraud provisions of the securities laws, it is essential you deliver a PPM to any non-accredited investors. And since accredited investors are not immune to getting amnesia, and will likely dream up any half-baked reason to try to recover their money in case the company doesn’t do well, then a PPM is an essential shield.
One common example is the case of an entrepreneur who has the idea of raising funds from investors to purchase undervalued real estate, then to fix it up, and sell the property for a profit. The investors who purchased shares (or partnership or LLC interests as the case may be) in the company would often be expected to receive a percentage of the profits generated. To make sure the offering is SEC complaint, a private placement memorandum of PPM is employed to outline the details of the opportunity, how the sharing arrangement works, and to present all the potential risks to the investors.
Success vs. Jail Time?
There are many entrepreneurs who had great business plans but for one reason or another decided to forego the PPM. High legal costs or lack of accurate information is usually the culprit. Often times they find themselves subjected to a cease and desist order from the Securities and Exchange Commission or state securities agency. Without a PPM that satisfies the anti-fraud provisions of state and federal securities laws, they can wind up being subjected to large fines and even jail time in certain cases, and barred from ever raising money for an opportunity again. THERE IS NO REASON NOT TO DO IT RIGHT!
There are also cases that I have helped defend where the client had cobbled together a PPM themselves using non-vetted boiler plate or used an attorney without experience in SEC matters that left them unnecessarily exposed. It is no fun trying to build a business while simultaneously facing a lawsuit or administrative action from the SEC or a state securities regulator. As an entrepreneur myself, I know how important it is to make sure the opportunity is fair and appealing to the potential investor. At the same time,the deal needs to beas air tight as possible from exposures that would sink youropportunity from any litigation or snags with the SEC.
The old adage, “Do it right the first time so you don’t have to do it again” is one I strive to live by in my personal ventures as well as my law practice.
Who Wants Quality and Value
I strongly believe in providing quality and value in my work. It’s true: Human nature in most cases want high value for the lowest possible price. I also believe that most people are fair and recognize true value and are willing to compensate for it fairly.
Again, in my role as an entrepreneur, I am always on the outlook for value. Value to me is that person who goes the extra mile, or someone who is with you all the way to your success, or simply something of worth obtained at a good price. We all see value a little differently, but I strive to provide added valuein everything that I do for a client.
Custom Crafted and All-Inclusive PPM’s
When it comes to doing a PPM for a client, I like to learn all the details of the opportunity where I can then custom craft a memorandum that will help your potential investor feel as though they have all the facts to make a well informed decision. This serves to protect you from any liabilities that might otherwise preclude you from success.
Along with the custom private placement memorandum, I will go the extra mile and provide you with further documentation that most attorneys fail to offer upfront, because most of them have not been in the shoes of the entrepreneur. In the efforts of providing value I do not nickel and dime you but provide you “ALL” the needed documents at an all inclusive fair flat fee.
Let’s Get Started –
I would appreciate the opportunity to discuss your legal needs. For a free initial consultation, please contact me through this site Private Placement Memorandum Attorney and we can set up a time to talk. I look forward to speaking with you and providing the support you need to succeed.