Depending on the industry, we routinely prepare PPMs with 20-35 pages of detailed risk factors specific to the offering. When Capital Fund Law Group prepares offering documents, the risk factor section occupies a substantial portion of the time spent on the document preparation. The SEC has indicated the need for specific, relevant risk factors. It provides most of the concerns investors should know about investing in the offering in a single place.Ī major mistake that many lawyers make (and even more unwary do-it-yourselfers) is they fail to include detailed, customized risk factors and instead, rely on general risk factors of uniform applicability found in a template. The Risk Factors section is included early in the PPM so that it will be one of the first sections a potential investor will read. It is highly recommended that a conservative approach to risk factors be taken and that, when in doubt, a risk factor should be included on a particular point. Accordingly, counsel must thoroughly understand the nature of the offering, its strategies or business plan, conflicts, limitations, exits and more which will allow counsel to deal appropriately with specific aspects of the offering, such as the sponsor’s experience and dependence upon outside parties to the Issuer. The Risk Factors section is one area where an Issuer must be particularly careful in disclosing important items. Risk factors must be drafted with specificity, tailored for each industry type, offering structure, and investment strategy or business plan. Risk factors are disclosures of the potential risks investors should consider that could lead to a loss of their investment. Perhaps the most important component of the PPM are the risk factors. The summary of the terms of the offering is just as its name suggests, a condensed description of the offered terms, including the offering structure, the description of the securities (such as the class of securities, securities attributes, etc.), price, minimum subscription amount, investor qualification standards, disclosure of applicable management fees, withdrawals, placement agent commissions (if applicable) and discussion of the terms from the Issuer’s governing documents (limited partnership agreements, operating agreements, etc.) The private placement attorney prepares the summary of the terms of the offering last, as it has the most moving parts. The following are among the key sections of a PPM: Summary of Offering Terms Components of a Private Placement MemorandumĪ well-prepared PPM will contain several recognizable sections, some of which have greater importance than others.
For the Issuer, the purpose of the PPM is to provide the necessary disclosures about the risks, strategies, management team, investment criteria and other information about its securities to protect itself and its managers against claims of misstatements or omissions.
The investor wants to know the parameters of investing in the Issuer and the potential rights, risks, and rewards of its investment. From an investor’s point of view, the purpose of the PPM is to obtain needed information about the Issuer and its securities, both good and bad, to make an informed decision about whether to purchase the security. A Private Placement Memorandum (“PPM”), also known as a private offering document and confidential offering memorandum, is a securities disclosure document used in a private offering of securities by a private placement issuer or an investment fund (collectively, the “Issuer”).
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