Private Placement Memorandums by Susan Mackasey

An Introduction to Private Placement Memorandums and Regulation D (Reg D)




Reg D (formally known as Regulation D) was implemented in 1982. Reg D allows companies to raise investment capital by selling equity or debt securities without having to file a registration statement with the Securities and Exchange Commission (SEC). This enables money to be invested in a company from private investors in the form of stocks and bonds. A deal that offers securities to a number of private accredited investors is called a Private Placement Offering (PPO). In order to secure funds, A

Private Placement Memorandum (PPM) is required. This confidential document discloses all relevant and significant information to investors -- the firms transaction structure (equity ownership or debt financing), proposed operations, terms of the investment, management details, potential risks, etc.. In order to develop the Private Placement Memorandum, it is important to understand the details of Regulation D. .




Reg D has six rules: Rules 501, 502, 503: Terms and conditions that apply in Reg D are defined in these three rules.


Rule 504: Applies to transactions of securities in any consecutive twelve-month period where the value of transitions is under 1 million USD. This rule allows companies to sell securities that are not restricted by specific guidelines. In addition it allows for the payment of commissions, and imposes no specific limit on the number of investors.


Rule 505: This applies to transactions where less than $5,000,000 of securities is sold in any consecutive twelve-month period. Sales to thirty-five "non-accredited" investors and to an unlimited number of accredited investors are allowed. It's not permitted to have General Advertising and/or General Solicitation.


Rule 506: Rule 506 does not impose a dollar limitation on the offering. It is open to all issuers for offerings sold to not more than thirty-five "non-accredited purchasers" and an unlimited number of accredited investors. General solicitation is banned as is general advertising.




There are 2 Primary Types of Regulation D Offerings:


Equity: This scenario is pretty much what it sounds like. The firm raises capital by selling stocks (or other membership units). New investors have to be confident in the success of the company; they will receive no payments if the company does not succeed. They will, of course, profit handsomely if the company does succeed.


Debt: A group of investors lends capital to the company. This is very similar to a traditional financial institution providing the loan but more flexible. The annual rate of return and the maturity date are clearly laid out in advance.




Private Placement Memorandum


To be successful in raising capital, a company should have (a) a sound business plan and (b) a Private Placement Memorandum that discloses the full facts of the business venture and the desired investment and terms. This Private Placement Memorandum should be developed by qualified professionals in order to ensure that all aspects are covered properly.







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