The Private Placement Memorandum (PPM) is an essential document related to individual investments, but it cannot work without the Operating Agreement. The Operating Agreement defines how the company offering the offering will operate. It typically provides information about the sponsor and management, the business plan, and investment risks. The PPM deals with the details of the offer, while the Subscription Agreement acts as the purchase agreement to acquire shares in the offering.
No, a PPM is not the same thing as a Subscription Agreement, although it is an integral part of a private placement offering. The Subscription Agreement serves as the actual agreement for the investor to purchase shares in the entity. One of the most important things they need to reach an agreement with a group of investors privately is a Private Placement Memorandum (PPM). The introduction of a PPM provides a brief summary of the actual offering, a description of the property, when the offering period will end, the minimum investment required, a statement of the risks involved, a statement of suitability standards, and a disclosure of the fees and commissions payable to the Sponsor.
On the contrary, a PPM serves as an informational document describing the advantages of a private offering (business or real estate) and addressing all external and internal risk factors associated with it. In some cases, there may be a unique risk, such as where the property is located or if there is a specific concern for the tenant. The asset management fee, which is generally 1% to 2% of actual income, is paid to the Sponsor to find and supervise the property management company managing the asset. Even after the operation is complete, there is still a lot of work to be done, such as finding the right financing and managing the property until it is sold.
The third part of the PPM is the Operating Agreement that will show how the LLC, limited partnership or other special purpose entity (SPV) will be managed (this will be the entity that owns the property, while investors will own shares in that entity). Finally, the Offering Memorandum serves as a marketing document that highlights main characteristics of a property such as neighborhood, location, operating expenses, cash flow and local market conditions. In addition, it can also include a preform and any projected return which is normally included as a separate annex attached to the PPM. Ellie is an experienced entrepreneur who helped create and scale companies by improving their business operations.
