A private placement memorandum, also known as PPM, is often used interchangeably with the term prospectus around the world for private offers. It is a tool used to attract outside investors, either by targeting a specific group or by soliciting investors in general. The document provides details on the conditions of the contract, the possible risks associated with the company, and a detailed description of the company's operations. An investment banker usually prepares an offering memorandum on behalf of business owners.
An offering memorandum is similar to a prospectus, but the first is for private placements while the second is for publicly traded issues. Business growth requires an injection of capital obtained from investors, and the offer memorandum is part of this process. For example, a company may decide to increase its number of offices, which will require a significant amount of funding. An investment banker then drafts the offering memorandum, which must comply with existing procedures and securities laws and regulations.
The company then chooses with whom to issue the document, based on its target investors. The final part of the prospectus is reserved for the subscription agreement, which acts as a contract between the issuer and the person who buys the securities representing debt or actions. A summary prospectus provides investors with the information they need from the final prospectus quickly and easily. A prospectus offer document can provide additional protection to a company and is often necessary to raise debt capital or equity capital in both public and private markets.
One way to meet the disclosure requirements of an exempt securities offering is to provide investors with a private placement memorandum. Whether raising private capital or launching a publicly traded company, a business plan and disclosure document are required. Owners of private companies use an offering memorandum to attract a specific group of outside investors. It may be slightly abbreviated from the final prospectus in a long format, but it still needs to contain specific information.
The preliminary prospectus, or red herring, is published during the IPO process and aims to generate interest in the new issue. While exempt securities do not usually require comprehensive public disclosure, disclosure of relevant information, even privately, is still necessary before taking capital from investors.
