Do I Need a PPM When Investing?
A PPM, or private placement memorandum, is a useful marketing tool that informs and sparks up interest, but it also helps investors comply with SEC law. A PPM is used to offer security in a private company to qualified investors. Therefore, it is important to have a qualified investment attorney review your PPM. Your company may be held liable and possibly subject to SEC fines if your PPM is unclear or insufficient. These memos are typically written by investment bankers, however, they might not be qualified to offer legal counsel. Your company could avoid costly fines, penalties, and legal costs in the future by hiring a lawyer upfront.
Comparing American and Overseas Investors
Private securities offered to foreign investors are permitted under the Securities Act of 1933, Regulation S. These offers could, however, raise further legal challenges. For instance, the offeror might be governed by the securities laws and regulations of another country if the offer is made directly to international investors.
The securities filings will probably be examined more closely to make sure that international investors have a fair chance to fully comprehend the offer and all of its financial and legal considerations. It may be possible to circumvent this issue by mandating that international investors register an LLC in the US in order to purchase the securities. Foreign laws are not applicable to transactions with foreign companies with registered LLCs because the LLC is regarded as an American company. Your business may be held liable for a PPM and other securities documents that do not adhere to all applicable regulatory requirements whether you are consciously seeking out overseas investors or a foreign investor comes to you. It is best to seek the aid of a lawyer experienced in international business affairs.
The Difference between Passive and Active Investors
The data contained in a PPM is accessible to both passive and active investors. Because they are less involved in the actual management of the investment than active investors are, passive investors rely more on this information than active investors. Due to this dependence, an offering company may be held more accountable for any PPMs that are unclear, inadequate, deceptive, or subject to different interpretations. When creating any securities materials for passive investors, exercise extra caution. A PPM can be a good source of legal security even though qualified “angel” investors are not typically obligated to have one. Make sure to ask your securities attorney about the appropriate forms of documentation for your company’s specific securities offering.