If you’re considering investing in a private company, you may come across the term “PPM.” But what is a PPM? Simply put, a private placement memorandum (PPM) is a legal document that’s provided to prospective investors when selling stock or another security in a business. It’s used in “private” transactions—that is, when the securities are not registered under applicable federal or state law—and typically outlines the company selling the securities, the terms of the offering, and the risks of the investment. Read on to learn more about PPMs and why they’re important for both investors and businesses.
What Does a PPM Include?
A PPM will typically include disclosures about the company selling the securities, as well as the terms of the offering and any risks associated with the investment. The type and amount of information included in a PPM will vary depending on which exemption from registration is being used, the target investors, and the complexity of the terms of the offering. However, some common disclosures that you might find in a PPM include:
- A description of the company’s business model
- The company’s financial history and current financial condition
- A discussion of any material pending litigation against the company or its officers or directors
- A description of any material contracts entered into by the company that could have a material impact on its business or financial condition
- A list of all securities being offered for sale, including any restrictions on their transferability
- The price at which the securities are being offered and how that price was determined
- The method by which proceeds from the sale of securities will be used
- A discussion of any material risks associated with investing in the company, including risks relating to its industry, business model, financial condition, etc.
Why Do I Need a PPM?
If you’re thinking about investing in a private company—or if you’re a business owner looking to raise capital through a private placement—it’s important to understand what a PPM is and why it’s required by law. First and foremost, issuing a PPM is generally required by law when selling unregistered securities in order to ensure that investors have access to material information about the security and the issuer. Additionally, potential investors will often request to see a copy of the PPM before making any decisions about whether or not to invest, so it’s important to have one on hand. Finally, issuers can use PPCs as a tool for marketing their offering and attracting potential investors.
As you can see, there are many reasons why private companies should have a private placement memorandum (PPM) on hand when raising capital. Not only is it generally required by law, but it also provides potential investors with important information about both the security andthe issuer. If you’re considering investing in a private company or are looking to raise capital for your own business, be sure to request (and review) a copy of their PPM before making any decisions.