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Creating a PPM – Private Placement Memorandum Federal Regulatory Compliance

  • Taking money from investors is regulated by Federal Securities Law with compliance by the Securities & Exchange Commission.
  • Avoiding the substantial expense of an I.P.O. – You can elect to use a Federal Securities Law which will exempt you from registration titled – Regulation ‘D’ Rule 506(c).
    *** (IPO) Initial Public Offering costs can easily exceed $250,000 plus.
  • To meet your responsibility under Rule 506(c) you must do the following:
    Provide investors with all “material information” that an investor would reasonably need to make an informed decision. The format is called a “Private Placement Memorandum – a.k.a. (Offering Documents) or (PPM)” and take money from “Accredited Investors Only”.
  • The key feature under Rule 506(c) is that you are permitted to advertise for investors. For example, you may create a website, newspaper advertising, television, radio, or Google AdWords campaign to bring prospective investors to your website.
Accredited Investors:  your investors must be qualified as “accredited investors”. There are several criteria that an investor can meet to qualify as an accredited investor but generally, they have a liquid net worth of >$1,000,000. (Google accredited investor for all qualifying criteria.)

Private Placement Memorandums generally consist of the following documents:

  1. Offering Document. 60 – 100 pages. Contains risk disclosures in addition to terms and conditions of the offering and information generally included in your business plan. Note: your business plan is NOT an Offering Document. The investor keeps this document and does not return it to you.
  2. Subscription Agreement. 18 – 20 pages. This document the investor signs and returns to you with their investment check. Among other things they acknowledge receipt of the Offering documents and precludes them from claiming in the future you failed to provide them with all “material information”.
  3. If an LLC. You would also provide an Operating Agreement. The investor also signs this document and returns it to you. Unlike normal operating agreements, this document will contain the information contained in the Offering Document and could be expensive to prepare since your attorney would need to read the 100-plus pages in the Offering Document to extract the information to be added to your Operating Agreement. Some companies include this document in their cost to prepare your documents.


Note: There is no approval process for selling securities to investors under Reg D Rule 506(c). You only file what is called Form ‘D’ within the first 15 days after the first sale of securities. Form D is a questionnaire that is filed electronically.


Note 2. Your Offering Documents are good for one year from the date listed on your Offering Documents. If you intend to exceed the one year you must file amendments annually.