In order to raise capital, many small businesses seek investors through what are known as private placements. These “private placements” can offer limited partnership interests, common or preferred shares of stock in small corporations, bonds, or even notes. These offerings are generally exempt from registration under both state and federal securities laws and regulations, most notably in California, California Corporations Code Section 25102(f) and under federal law, Regulation D and Rules 505 and 506. The securities, interests, or other evidence of one’s ownership in such ventures contains a legend advising the investor that the securities have not been registered with either the State of California or the Securities and Exchange Commission, and that there are restrictions on their transfer by the investor.

The method for advising investors about the availability of the investment is through the Private Placement Memorandum (“PPM”), which includes information about the company offering the securities, the terms of the offering (such as the price to be paid and what will be given to the investor in return for the investment), the risks inherent in the investment, and the management of the business being funded. While the specific information contained in the PPM will vary depending upon a number of factors, including the type of investment sought, all security transactions are subject to federal and state laws designed to prevent investors from being defrauded. Because of the securities laws, one of the key features of every PPM is that the statements contained in the PPM must not be false or misleading.

While the specific information in each PPM varies, some of the general information that one might expect to see in the PPM is:

• An introductory statement summarizing the offering together with certain “legends” required by state and federal law;
• A summary of the offer including an explanation of the capitalization of the venture, liquidation preferences, and voting rights;
• A description of the risk factors that may affect the investor;
• A detailed description of the management team of the venture including their education and general business experience and other biographical information concerning members of the management team;
• How the capital raised by the offering is expected to be used and the amounts expected to be used for each purpose;
• A section describing how the investor can make its investment; and
• Exhibits that may provide additional information material to the investor’s decision to make the investment.

Whether you are seeking to raise capital for your venture or have received a PPM and want to understand the information contained therein, Michael Leonard, Esq. of San Diego Corporate Law is the attorney you can trust to assist you with understanding the contents of the PPM, how it should be structured, and the securities laws applicable to the offering. To schedule a consultation with Mr. Leonard to discuss your securities needs, or any other business-related matter, you can contact him by visiting San Diego Corporate Law or by telephone at (858) 483-9200.