What’s a Non-public Placement Memorandum? (PPM)


ppmA Non-public Placement Memorandum, or “PPM,” is a disclosure doc usually utilized in reference to a personal providing of securities. It accommodates a compilation of details about the corporate issuing the securities, the phrases of the securities, and the dangers of investing in these securities. This text explains the authorized background underlying why a PPM is usually used and overviews what is often included in a PPM.

Why Use a PPM?

Put merely, a PPM is used to tell potential traders about an providing of securities. The quantity of disclosures included in a disclosure doc like a PPM varies amongst personal corporations which might be promoting securities with some corporations together with a really detailed PPM to others selecting to not embody any formal disclosure doc to their traders. How does a enterprise proprietor looking for to boost capital or an organization officer concerned in a securities providing know if the corporate, or “issuer,” must be distributing a PPM to potential traders? To reply this query, let’s first contemplate the authorized background underlying why PPMs have turn into frequent follow for issuers.

The Securities Act of 1933 (the “Securities Act”) governs securities choices and requires that each one choices of securities be registered with the Securities and Change Fee (“SEC”) or meet the necessities of a registration exemption. One of the crucial generally used registration exemptions is Part 4(a)(2) of the Securities Act, which exempts these choices which don’t contain a “public providing.” Choices that depend on Part 4(a)(2) are generally known as “personal placements” since they’re meant to not contain a “public providing” (therefore the title Non-public Placement Memorandum). Registering an providing with the SEC is an costly and prolonged course of and due to this fact, personal issuers usually go to nice lengths to suit beneath the Part 4(a)(2) exemption.

There may be a number of steerage from the SEC on what’s and isn’t thought of a personal providing of securities. Nonetheless, the spirit of this steerage revolves round correct disclosures to potential traders, with the diploma of these disclosures being on a spectrum: much less subtle traders needing extra disclosures and extra subtle traders needing much less disclosures. Moreover, securities legal guidelines require these disclosures to be correct and never deceptive. Since a PPM formally memorializes what you might be telling potential traders about your organization and its providing, it’s a useful gizmo to (i) help an issuer in offering acceptable data to potential traders and (ii) adjust to securities legal guidelines governing these disclosures. 

What is often included in a PPM?

Now that you’ve an understanding of why chances are you’ll need to use a PPM, let’s flip to what’s usually included in a PPM. For the overwhelming majority of personal choices, the securities legal guidelines solely present steerage on what could also be disclosed in a PPM versus particular necessities. Nearly all of the SEC’s assets are, understandably, spent on reporting corporations (assume Fb and Apple), which do have disclosure necessities. On account of this focus, many of the SEC’s steerage is expounded to those reporting corporations. That being mentioned, personal providing practitioners have typically taken this steerage and utilized it to personal choices. 

Essentially the most generally included sections of a PPM are (i) an outline of the issuer, (ii) an outline of the phrases of the providing, (iii) sure danger components and disclosures, (iv) a subscription settlement and investor questionnaire, and (iv) a abstract of any materials agreements. Though these are the frequent components of a PPM, each scenario differs. 

Description of Enterprise. To persuade somebody to put money into your organization, you must inform a great story. To do that, it’s essential to precisely depict what you are promoting, which is the rationale an outline of the enterprise is usually one of many first sections within the PPM. Nonetheless, from a authorized perspective, you should be cautious in crafting this part in order that you don’t violate the prohibition towards using fraud, materially false statements, omission of fabric data, or different acts to deceive one other individual with respect to the providing or promoting of securities. Committing securities fraud might lead to an adversarial judgment, penalties, fines, and even a proper to rescind the acquisition of securities. To additional defend the issuer from claims of fraudulent gross sales, an issuer can also give potential traders entry to key company paperwork and supply materials to again up the knowledge within the PPM. 

The Providing. This part usually describes the phrases of the deal and customarily, a broad abstract of the principle paperwork concerned within the deal (e.g., company paperwork and stockholders agreements). Questions usually addressed on this part embody: how a lot fairness is being provided, worth of the shares, whether or not there a minimal buy quantity, what rights traders could have, and who’s eligible to take a position. 

Sure Disclosures/Danger Elements. Disclosures and danger components are particularly vital in addressing the anti-fraud provisions addressed above. This part of the PPM describes intimately the dangers related to what you are promoting. Though your inclination could also be to restrict your danger disclosures as a result of you do not need to “scare” off traders, it must be the part you spend nearly all of your time. As talked about above, securities legal guidelines (particularly with respect to reporting corporations) information PPM disclosures. For example the significance of drafting these danger components rigorously, contemplate the case the place the SEC initiated an motion towards Mylan N.V. (“Mylan”), an SEC reporting firm. The SEC alleged Mylan violated Part 17(a) of the Securities Act as a result of Mylan disclosed in its SEC filings that there was danger that the Facilities for Medicare and Medicaid Companies (“CMS”) “could” take the place that its submissions to Medicaid had been incorrect when, the truth is, CMS had already informed Mylan that it was misclassifying one in every of its medicine leading to incorrect submissions. In different phrases, as a substitute of exposing that CMS had already disagreed with Mylan’s classification of one in every of its medicine, Mylan misleadingly used the phrase “could” and offered it solely as a possible danger. This instance highlights how correct corporations must be in disclosing its enterprise dangers to its traders. (Cite: See sec.gov/information/press-release/2019-194; https://www.sec.gov/litigation/complaints/2019/comp-pr2019-194.pdf)

Subscription Settlement and Investor Questionnaire. With the intention to buy securities, an investor typically wants to finish some type of a subscription settlement. This settlement governs the precise buy of securities (e.g., how a lot is being purchased, when should funds be transferred and the way, and many others.). Investor questionnaires are additionally generally included. Not solely does a questionnaire present the issuer with the investor’s contact data, it’s also helps the issuer adjust to the suitable personal placement exemptions from the SEC’s registration necessities. For instance, if an issuer is relying upon the Rule 506(b) protected harbor, typically the issuer will restrict the providing to accredited traders, and an investor questionnaire offers the issuer an affordable perception that the investor is an accredited investor.

Summaries of Materials Agreements. Lastly, PPMs additionally usually embody summaries of the fabric deal paperwork. Typically, these summaries are extra in depth than the abstract of the providing part addressed above. Relying on whether or not the issuer is a company, restricted legal responsibility firm, or different entity, sure governing paperwork can also be hooked up. For instance, a company may connect its certificates of incorporation which incorporates data on the category of shares provided, whereas a restricted legal responsibility firm may connect its restricted legal responsibility firm settlement which units forth the rights and obligations of its members.

In abstract, a PPM is offered to traders to tell traders concerning the providing, mitigate sure dangers to the issuer related to the providing, and to really promote the securities. Whereas many kinds of choices don’t require a PPM to be delivered, it’s useful to think about the assets spent getting ready securities disclosures like buying insurance coverage. The extra put into getting ready the disclosures, the extra these disclosures will defend towards danger of potential securities legal guidelines violations.


This text is for common data solely. The knowledge offered shouldn’t be construed to be formal authorized recommendation nor the formation of a lawyer/shopper relationship.

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