You have a great idea for a business that you know will be profitable. However, you need money to start your small business. One option available to you may be a private placement memorandum.

What Is a Private Placement Memorandum?

Private placement memorandums (PPMs) are legal documents that small businesses can use to raise capital from private investors. These private transactions allow small businesses to sell stock or security even though the securities are not registered and sold in a public stock exchange.

Your business may raise an unlimited amount of capital from accredited investors. Accredited investors are those who have an annual income of at least $200,000 for an individual filer or $300,000 for a joint filer for the last two years and expect to earn at least that amount in the current year or those who have a net worth of more than $1 million. An entity may be an accredited investor if it has at least $5 million in assets.

Additionally, you may enter a PPM with up to 35 non-accredited investors, as long as the non-accredited investors have sufficient knowledge and experience about financial and business matters to evaluate the potential benefits and risks of the investment.

What to Include in a Private Placement Memorandum

PPMs may be short documents, but they must be truthful and include all legal requirements. For example, your PPM may include:

  • The name and a description of your business
  • Your business management team
  • The terms you are offering
  • The risks that could impact the investor’s return
  • How you will be using the money you raise
  • A description of the securities
  • Instructions for investing
  • Exhibits and supporting documents

Together, this information will provide potential investors with the information they need to make informed decisions and will provide you with the legal protection you need when you seek investors.

Discuss All Financing Options With Your Michigan Business Lawyer

You don’t want to make mistakes when you draft your PPM. Our experienced Bloomfield Hills business law attorneys are here to help you make the right decisions for your business. Text us, call us, or complete our online contact form today to get more information about how we can help your small business succeed.