When conducting a private placement offering, there is one essential document that companies must draft: a Private Placement Memorandum... a PPM is used to provide information to potential investors so that they have the opportunity to properly evaluate the merits of an investment in the company.
A Private placement is a common method of raising business capital through offering equity shares. Private placements can be done by either private companies wishing to acquire a few select investors or by publicly traded companies as a secondary stock offering.
A Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors.
Advantages To a Private Placement Memorandum
The private placement regulations allow an issuer to avoid the time and expense of registering with the SEC. The process of underwriting the security is faster, which allows the issuer to receive proceeds from the sale in less time. If an issuer is selling a bond, it can also avoid the time and expense to get a credit rating from a bond agency. A private placement issuer can sell a more complex security to accredited investors who understand the potential risks and rewards, and the firm can remain a privately owned company, which avoids the need to file annual disclosures with the SEC.
Regulation D (Reg D) is a Securities and Exchange Commission (SEC) regulation governing private placement exemptions. Reg D allows usually smaller companies to raise capital through the sale of equity or debt securities without having to register their securities with the SEC.
A Private Placement Memorandum (PPM) is the centerpiece of an SEC Form D filing. It is a prospectus-like document that divulges vital information about offered securities to potential buyers, including the deal terms, disposition of funds, company- and industry-based risks, and other important facts.
An important aspect of raising capital in a private placement is the involvement of accredited investors. While private placements do not require the issuer to register its securities with the SEC, it does require that the issuer only sell the private securities to investors that qualify as accredited investors under the standards set forth by the SEC in Regulation D of the Securities Act of 1933.