A typical PPM includes: the ownership structure of the company, the investment structure, mandatory legal disclosures, management backgrounds, company operations, risk levels, use of proceeds, financial information, business plan, dilution, investor suitability, subscription agreement and more.
Typical list of items needed to develop a PPM:
- Business plan;
- Balance sheet, or financial statement, if available;
- Management bios;
- Capitalization table, ownership records; and
- Investment scenario for investors.
PPM’s are designed as a stand-alone document, meaning that no other information is needed when presenting to investors. The PPM is sufficient for them to make an informed investment decision.
Many companies will attach their business plan, financial statements, articles of incorporation and other documents, to the PPM as supporting documentation. This is acceptable so long as the information in the business plan properly corresponds with the information in the PPM and that the investor is made aware that the business plan alone does not constitute an offer to sell securities – only the PPM can make that offer.
Investor Suitability Questionnaire
Regulation D requires the company (Issuer) to ascertain the status of all investors. All investors must be accredited, however in Rule 506(b) Issuers can accept investments from up to 35 non-accredited investors.
The Subscription Agreement
The Subscription Agreement is the “investment contract.” It is executed by the investor and returned to the Company (Issuer of the securities) with the investor’s check.
Just as the PPM provides disclosure to the investor regarding the company’s financial status, the Subscription Agreement provides full disclosure to the company regarding the investor’s financial status. In the Subscription Agreement the investor provides assurances to the issuing company that an absolute loss of their investment capital will in no way impact their standard of living or jeopardize their financial picture as a whole, hence, Reg D investors need to be qualified as Accredited Investors.
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