A PPM is required if the issuer is using Rule 506(b) to onboard non-accredited investors (however, as noted above, Rule 506(b) is not generally advised for non-accredited investors). Although issuers can technically sell to non-accredited investors under Rule 506(b), the disclosure obligations are burdensome and therefore non-accredited investors should usually be avoided under Rule 506(b). Rule 506(b) permits an issuer to sell an unlimited amount of securities to accredited investors and up to 35 non-accredited investors. Rule 506(b) has historically been the most commonly utilized securities registration exemption – partly because Rule 506(b) removes the need of an issuer to satisfy a state securities registration exemption in each state where an investor resides. If the issuer plans to offer securities to non-accredited investors, then Rule 504 is oftentimes the desired exemption since it does not require that certain specific information (e.g., audited financials) be provided to non-accredited investors. Unlike Rule 506, Rule 504 does not preempt state securities laws therefore, an issuer will need to confirm that a state exemption is satisfied in each state where an investor resides. Investors can be either accredited or non-accredited, but the issuer may not utilize any form of general solicitation for the offering. Rule 504 permits an issuer to sell up to $5 million of securities in any 12-month period. Satisfy one of the safe-harbors, then your offering has complied with Section 4(a)(2) and has satisfied an exemption.īelow is a description of two of the most common safe-harbors and guidance for when use of a PPM is advised. However, the SEC has provided several safe-harbors for the “public offering” test. How do you know whether an offering involves a public offering? There are numerous authorities, including a Supreme Court decision, that help to make the analysis less muddy. It provides an exemption for offerings that do not involve a “public offering.” At first glance, that text may not appear helpful. The most commonly used exemption is provided by Section 4(a)(2) of the Securities Act of 1933. Registering a securities offering is expensive and not appropriate for most companies, so it is necessary for an issuer to satisfy an exemption. Federal law (and state law) prohibit a company (also known as an “issuer”) from selling securities (think stock and certain kinds of debt) unless the offering is registered or satisfies an exemption from registration. PPMs go by a variety of names – including confidential information memorandums (CIMs) and offering memorandums.Ī basic understanding of securities law is necessary to understand how and when PPMs are used. In some ways, it is like a business plan, but with detailed additions for investment risk factors, securities law provisions, and the proposed terms of investment. A PPM is a document that discloses information regarding the company that is seeking to raise investment capital. The short answer is that it depends, but it is usually advisable and sometimes required. MaDo I Need a Private Placement Memorandum to Raise Investment Capital?
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |