Why Do Entrepreneurs Need PPMs?

 

One of the best ways to raise money is by offering an interest (ownership) in a company through common stock. A limited amount of common stock can be sold to accredited investors (and a limited number of non-accredited investors and used to raise the needed capital through a Private Placement Memorandum (PPM).

Since you're selling a security when you raise private money, you must comply with the securities laws. An investment contract under the Howey Test was defined in one sentence as follows:

1. an investment of money due to

2. an expectation of profits arising from

3. a common enterprise

4. which depends solely on the efforts of a promoter or third party

 

Businesses must register their securities unless they are exempt through intra-state exemption or SEC Regulation D. When businesses follow rules 504, 505 or 506 they will be exempt after submitting Form D, with a summary of their deal.

The most well known rule is that stock cannot be sold except it is registered with the SEC.
Rule 506 of Regulation D of the Federal Securities Laws makes that rule exempt. As long as the business follows the provisions made in Rule 506, it can raise as much money as they desire.

There are three parts of a Private Placement Memorandum. The Disclaimer contains all the possible risks and conflicts that could happen. Generally this is a long list of “what-ifs.”

After reading through the disclaimer, if the investor is interested, they will go to the Subscription Agreement. The investor will fill out financial statements and their background in such experiences, they will disclose the amount of money they are willing to invest and it will contain their contact information. The Operating Agreement or bylaws depending on the type of business entity governs policies and procedures.

If something goes wrong with a project, people can call their attorneys and ask for their money to be returned as well as a copy of the investment documentation. The PPM gives investors the information they need to make an informed decision.

Many businesses forgo the legal work of creating a PPM because it is time consuming and expensive. Although they need capital, they never get the PPM done. PPMFunding.com is willing to write PPMs for less than most providers. They also provide a platform where entrepreneurs can send their accredited investors to review the business plan, PPM and Subscription Agreement.

Click on the appropriate word to Create or Promote your PPM or Invest in someone else's.