A private placement memorandum, or PPM, is the disclosure document a company gives investors in a private securities offering. It describes the business, the securities being sold, the risks, and how the money will be used. It is the private-offering counterpart to a prospectus.
Is a PPM Legally Required?
It depends on who you sell to.
- ›Rule 506(b) with any non-accredited investors: Regulation D requires specific disclosure, including financial statement information, to be delivered to non-accredited purchasers. In practice, that means a PPM.
- ›Rule 506(b) or 506(c) with only accredited investors: Regulation D does not prescribe a disclosure document. But the antifraud rules still apply to every offering. Any material misstatement or omission — in a deck, an email, or a conversation — can create liability. A PPM is how a company proves what it told investors.
The short answer: if you are raising real money from people outside your immediate circle, you need one.
What Goes in a PPM
- ›Description of the company and its business
- ›Terms of the securities being offered
- ›Use of proceeds
- ›Management, compensation, and related-party transactions
- ›Capitalization and dilution
- ›Risk factors specific to the company
- ›Subscription procedures and investor qualifications
Along with it: a subscription agreement, an investor questionnaire, accredited investor verification procedures for 506(c), and the Form D filed after the first sale.
Where PPMs Go Wrong
From my years in the SEC's Division of Enforcement (1991–2000), I saw the same failures repeatedly:
- ›Template risk factors. Generic risks copied from another offering, while the real risks go unmentioned.
- ›Stale facts. The PPM was accurate when written; the business changed; nobody updated it.
- ›Use of proceeds drift. Money spent differently than described, without disclosure.
- ›Inconsistency. The deck promises what the PPM carefully disclaims. Investors and regulators read both.
A PPM that says the right things in careful language does not help if everything else the company says contradicts it.
How Much Does a PPM Cost?
At hourly rates, PPM fees are open-ended. In my practice, PPMs are quoted as a single flat fee before work begins. See PPM Attorney for what is included.
Related Reading
- ›Reg A vs. Reg D: Which Exemption Fits Your Raise?
- ›Regulation D Enforcement Triggers
- ›How Much Does a Securities Lawyer Cost?
Questions about how this applies to your company? Email me directly at flehrer@securitiesattorney1.com or call (561) 706-7646. No intake form, no screening call.
This post is general information, not legal advice.
Authoritative Sources
- 17 C.F.R. §§ 230.500–230.508 — Regulation D — Electronic Code of Federal Regulations
- SEC Investor Bulletin: Accredited Investor Definition — U.S. Securities and Exchange Commission
- SEC Enforcement Manual, Division of Enforcement — U.S. Securities and Exchange Commission
- SEC Division of Enforcement — Litigation Releases — U.S. Securities and Exchange Commission
- 17 C.F.R. Part 240 — General Rules and Regulations, Exchange Act — Electronic Code of Federal Regulations
- SEC EDGAR — Full-Text Search of Company Filings — U.S. Securities and Exchange Commission
Primary sources are cited so readers can verify the law directly. Rules and staff guidance change; see our editorial and corrections policy to report an error or an outdated citation.
Frederick M. Lehrer served as an enforcement attorney in the SEC's Division of Enforcement at the Southeast Regional Office from 1991 through 2000, and concurrently as a Special Assistant United States Attorney in the Southern District of Florida from 1997 through 1999, prosecuting securities-related financial crimes. He has practiced securities and corporate law in private practice for more than twenty-five years, advising issuers worldwide on SEC registration, disclosure obligations, Regulation D private placements, Regulation A offerings, and going public transactions. The firm is based in Florida and serves clients internationally.
Questions about how this applies to your company are answered personally — most within the same business day. Flat-fee arrangements available for most work.