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The following article was published in our article directory on February 4, 2012.
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What Should Go In Your Offering Memorandum

Article Category: Business

Author Name: Nick Jevic

Now that you have made the selection to use a Private Placement Memorandum, what goes in it? The fundamental matter of State and Federal securities laws are the protection of the investor. Within this context, there is one paramount rule - tell the truth, the whole truth and nothing but the truth. This means do not misrepresent key facts, and do not omit material facts where the inclusion of such facts would lead the potential investor to a different decision.

In addition to being truthful and factual, your PPM should really provide your prospective investors with all the data needed to make an educated investment determination. It's common sense - put yourself in the investor's shoes and take into account what information you 'd like to have.

And, while the required disclosure will change depending on several elements, like size of the offering and whether there are non-accredited investors, I recommend erring on the side of caution. You could run afoul of securities laws by not having the right disclosure, but there will be no harm if you "over-disclose".

The following includes some of the sections that ought to be included in your Private Placement Memorandum:

- Notices to Investors: The Notice to Investors section provides for federal and state disclosure legends, stating numerous notices to prospective investors informing them that the securities described in the PPM are not registered. Moreover, some states have specific disclosure language that they will require over and above the federal disclosures.

- Summary of Terms: The Summary of Terms provides a summary of the "offer"; i.e. purpose of the transaction, who the issuer is, what kind of security is being issued, specific terms of the security being issued (dividends or interest; current pay or accrued; warrants; collateral), affirmative and negative covenants, conditions precedent, etc.

- Risk Factors: This section sets forth the risks specific to the issuer and the risks of investing in the sort of securities being issued. Some examples consist of dependence on customer concentration, cyclicality, incapacity to achieve projections, changes in regulations, etc.

- Conflicts of Interest: The conflict of interest section recognizes and illustrates conceivable conflicts of interest of the issuer, and its principals or affiliates. As an example, one of the principles may provide accounting services for the issuer, or one of the principles may be a significant customer of the issuer.

- Description of the Issuer, its Business and the Business Plan: Explains the business of the issuer including its products, strategy, customers, sales and marketing, operations, industry and competitive analysis, and discussion of management.

- Transaction Description: The transaction section describes the transaction, including a schematic of the transaction, sources and uses table and capitalization.

- Financial Information: This section features presentation of historical financial performance as well as discussion and analysis of the results. The financial information section will also include management forecasts and relevant assumptions behind the forecast.

- Misc Sections: These sections are going to generally comprise of tax matters, and a summary of the capital stock of the issuer.

- Subscription Section: This section provides the prospective investor with the instructions on how to participate in the offering.

- Appendices: The appendices will vary from deal to deal, and should consist of supplemental information and documents that may be material to an investor's investment decision. Items that may pertain the appendices include the letter of intent, audited financial statements, shareholder's agreement, etc.

. While all of this looks complicated, you can make it easy on yourself by utilizing a Private Placement Memorandum template. Making use of a PPM template will ensure that you end up with a professional-looking offering memorandum, while easily saving thousands of dollars.

Keywords: private placement, financing a business, raising capital, what is a ppm

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