Private Placement Memorandum

Private Placement Memorandums
Small business relies heavily on private offerings for an infusion of capital.  However, what are they, and how can they solve small business problems of capitalization?   Find below a detailed explanation of Private Placement Memorandums.


Federal Offerings
Q  -  What is a Private Placement Memorandum?
A  –   A private placement memorandum is a private securities offering that allows businesses to raise an unlimited amount of money from investors.   There are several different offerings that are possible.

Q  -  What are the benefits of a Private Placement Memorandum?
A  -  The benefits of the private placement memorandum allow you to raise money in all of the United States as well as foreign countries as well.  You can also use all of the assets in one or more states.

Q  -  What are the burdens with a Private Placement Memorandum?
A  -  As the name “Private” suggests, this offering is not able to be “generally advertised.”  This means that you cannot advertise for investors through the internet, newspaper, etc.  Furthermore, the prospective investor must have a prior relationship with the offeror.  Therefore, you cannot advertise and use a mailing list to pick up investors.  However, we have some ideas that help you advertise without generally advertising.

Q  -  What Types of Offerings Are Possible?
A1  -  Rule 504 – If you want to only raise $1,000,000 or less, Rule 504 is a perfect offering.  It allows you to raise up to $1,000,000 with an unlimited number of investors, whether or not they are accredited.  (Accredited investors will be defined below)

A2  -  Rule 506 – If you need to raise more than $1,000,000, Rule 506 is the best offering.  It will allow you to raise an unlimited amount of money.  However, all but 35 of the investors must be “Accredited Investors,” which mean that a prospective investor must have an annual income of $200,000 or, if married and considering the spouse’s income, $300,000, or the investor’s net worth must be $1,000,000, which can include the person’s primary residence.

State Offerings
Q  -  What is a State Registered Offering?
A  -  A state registered offering is a private offering that allows brokers or lenders to raise an unlimited amount of money from investors in one state.

Q  -  What are the benefits of a State Registered Offering?
A  -  The largest positive of this type of offering is that businesses can advertise for investors within that state.   That means that you can use mailing lists, newspapers, and possibly the internet to find investors for your business.

Q  -  What are the burdens of a State Registered Offering?
A  -  There are a few negatives to a State Registered Offering. First, you can only accept money from investors in the state in which the offering is registered in.  Second, you can only use up to 20% of the assets of your company out of the state in which the offering is registered in.  Finally, if your state is a NASAA state, it could require a high net worth to promote the business.

Q  -  So which one is right for me?
A1  -  There is no blanket answer on which offering you should do.  You should take into account your existing network, your market, your goals, and most importantly, your business plan.  Contact us to determine the best private offering for your growing business.

A2  -  Nothing on this website should be construed as tax or legal advice.  This was written for educational and informational purposes only and should not be relied upon for legal advice.  You should consult with your attorney to determine what would be legal and appropriate to your specific situation.