PPM Lawyers

Our private placement attorneys have assisted hundreds of clients— in all stages and from all major industries— in drafting clear, concise, and competitive PPMs.

Attorney Nick Oberheiden
Private Placement Memorandum
Lawyer Team Lead

Private placements allow growth stage companies to raise capital from outside investors without registering with the U.S. Securities and Exchange Commission (SEC). Even when the ultimate goal is to go public, private placement offerings are often a critical stage in getting to an initial public offering (IPO).

While there are various ways to complete a private placement, one of the most common ways is through the issuance of a private placement memorandum (PPM). Working closely with a Private Placement Memorandum attorneys to carefully craft a memorandum is critical. To serve their intended purpose (which is to protect the company and establish compliance with federal securities laws), PPMs must be custom-tailored to individual transactions, and they must adequately disclose pertinent risks and other terms.

When Do You Need a Private Placement Lawyer?

Under federal securities laws, all securities offerings must be either: (i) registered with the SEC; or, (ii) exempt from registration. While securities are commonly thought of as private equity fund interests, debt securities exist as well. Some of the most common forms of securities include:

Stock (common or preferred)
Stock options
Restricted stock units (RSUs) and restricted stock awards (RSAs)
Membership interests
Debt instruments
Convertible instruments

All of these can require a private placement memorandum (or, in some cases, an alternate form of documentation) when being sold subject to a federal registration exemption.

The primary registration exemptions that growth stage companies use for private placements appear in Regulation D. Two rules promulgated under Regulation D allow unregistered private securities offering—Rule 504 and Rule 506—though most companies use Rule 506 when making a private placement offering with PPMs.

Private Placements Under Rule 506

Rule 506 has two parts that apply to unregistered securities offerings: 506(b) and 506(c). Under Rule 506(b), companies can issue private placements to an unlimited number of accredited investors and up to 35 non-accredited investors. Rule 506(b) offerings are typically used to sell shares and other interests to previously identified investors. Under Rule 506(c), companies can advertise their private placements to the general public, but they may only issue PPMs to accredited investors.

To qualify as an accredited investor, an individual must meet at least one of three criteria established by the SEC. An individual can qualify as an accredited investor if either: (i) the individual’s income in each of the prior two years was at least $200,000 (or $300,000 together with their spouse or partner) and the individual reasonably expects to earn this threshold amount in the current year; (ii) the individual has a net worth over $1 million (either alone or together with their spouse or partner), excluding their primary residence; or, (iii) the individual is a broker or other financial professional with a qualifying certification or credential.

Private Placements Under Rule 504

Rule 504 allows companies to offer up to $10 million in private placements in a 12-month period. Investors can be either accredited or non-accredited. As noted by the SEC, private placements under Rule 504 generally involve restricted securities, which means that investors must comply with a registration exemption to resell their interests, such as the requirement to hold the securities for at least one year.

Importantly, as the SEC explains, “[c]ompanies that comply with the requirements of Regulation D do not have to register their offering of securities with the SEC, but they must file what’s known as a ‘Form D’ electronically with the SEC after they first sell their securities.” A PPL attorney at Oberheiden P.C. can assist with all aspects of conducting private placements—from vetting accredited investors and drafting custom-tailored PPMs to filing Form D with the SEC.

Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester

Former U.S. Attorney

Hon. Kevin McCarthy

55th Speaker, U.S. House of Representatives (ret.)

Government Consultant

Mike Pompeo

Of Counsel

Former U.S. Secretary of State

John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara

Federal Appeals Attorney

Nicholas B. Johnson

Former Prosecutor

Roger Bach

Former Special Agent (DOJ)

Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen

Former Supervisory Special Agent (FBI)

What Information Should a PPM Contain?

When conducting a private placement under Rule 504 or Rule 506, it is important to work closely with an experienced Private Placement lawyer who can assist with establishing your company’s exemption and ensuring that your company’s private placement memorandum contains all necessary protections and disclosures. It is critical for a PPM to be custom-tailored to the specific deal at hand, as the nature and terms of the deal will determine the specific protections and disclosures that are necessary. With this in mind, some of the types of terms that will generally be included in a PPM legal document include:

Executive Summary
Offer Terms
Subscription Procedures
Risk Factors
Financial Information
Management Team
Business Structure
Raising Capital Funding Structure and Use of Proceeds
Securities Law Compliance
Dispute Resolution, Choice of Law, and Other Legal Terms

While executing a private placement memorandum is, to a certain extent, a formality in many cases, it is important not to discount the need for a well-drafted PPM. The PPM will provide protection in the event of litigation or an SEC inquiry; and, by going through the process of developing a PPM, company owners and executives can ensure that they are taking all of the steps necessary for a valid unregistered securities offering.

How PPM Lawyers at Oberheiden P.C. Can Help

Here are just some of the ways an experienced PPM lawyer at Oberheiden P.C. can help:

How We Help Growth Stage Companies

For growth stage companies, we assist with all aspects of federal securities compliance. This includes assessing the viability of private placements, drafting custom-tailored PPMs, conducting due diligence on investors, and preparing and submitting all necessary SEC filings. While we focus on comprehensively addressing our clients’ securities-related risks, we also prioritize efficiency, and we are able to help our clients quickly navigate the private placement process when desired.

How We Help Accredited and Non-Accredited Investors

For accredited and non-accredited prospective investors, we assist with reviewing private placement memoranda, conducting due diligence on issuers, and negotiating the terms of PPMs as necessary. Whether you are considering a solicited or unsolicited private placement, we can provide you with the advice and insights you need to make a sound investment decision.

FAQs: What Founders, Executives, and Investors Need to Know About PPMs

What Is a Private Placement Memorandum?

A private placement memorandum (PPM) is a document that is used when making an unregistered securities offering. Under federal securities laws, all securities offerings must either be registered or exempt from registration. Using a PPM allows companies to demonstrate compliance with the federal registration exemption requirements.

Is a PPM Required for an Unregistered Securities Offering?

Strictly speaking, a private placement memorandum (PPM) is not required for an unregistered securities offering. There is nothing in the law that specifically says companies need to use PPMs. The law establishes disclosure requirements and various other obligations for “issuers,” but it does not establish specific requirements regarding the format in which mandatory disclosures are made.

However, the PPM has become standard for private placements. Issuers have used PPMs for decades, and the SEC is familiar with this practice. As a result, while a PPM may not be strictly required, it is a highly effective tool that companies should use when conducting unregistered offerings with both accredited and non-accredited investors.

What Other Legal Documents Do I Need When Issuing a PPM?

A private placement memorandum (PPM) is just one of a handful of documents that companies generally need when offering private placements to accredited or non-accredited investors. Along with a PPM, other necessary documents generally include: (i) clear and well-drafted organizational documents; (ii) an investor suitability questionnaire; and, (iii) a subscription agreement. Depending on the nature of the offering, other documents (such as a promissory note) may be necessary as well.

Is it Safe to Use a PPM Template?

We strongly recommend against using a PPM template for several reasons. Unfortunately, while there are lots of PPM templates available online, these templates are generic at best—and deeply flawed at worst. When conducting a private placement, it is critical to use documentation that is custom-tailored to the specific offering at hand. This includes a custom-tailored PPM. While a well-crafted template may be useful as a starting point, developing a private placement memorandum that serves its intended purpose requires the services of an experienced PPM attorney.

How Do I Choose a Private Placement Attorney?

There are several factors to consider when choosing a PPM attorney. When choosing an attorney to draft a private placement memorandum for your company (or review a PPM you have received as a prospective investor), it is critical to ensure that your attorney has adequate relevant experience. The federal laws, rules, and regulations that govern private placements are complex, and failure to comply with the relevant federal requirements can create exposure for all parties involved. Familiarity with the company’s industry will be important for drafting appropriate terms as well, as will an adequate understanding of the financial terms of the deal.

Speak with an Experienced Private Placement Memorandum Lawyer at Oberheiden P.C.

At Oberheiden P.C., we have extensive experience representing clients in federal securities law matters, including private placements. Along with experience in private practice, many of our attorneys also have prior experience overseeing securities fraud enforcement cases within the federal government. To learn more in a complimentary initial consultation, please call 888-680-1745 or tell us how we can help online today.