how to make your llc private placement [Guide]

Last updated : Sept 19, 2022

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hi this is Brett Sanctus the right-brain business lawyer and today we're talking about private placement memorandum tour ppm s sometimes called confidential offering memorandums or confidential information memorandums but ppm is the terminal here the most in the context of securities offerings and so that's the context at which we're gonna talk about them today sometimes you'll see them called coming into information memorandums when they're the whole business is being marketed through investment bankers or something but this is about a ppm what it is what's in it why you use it all in the context of offering securities stock or interest in an LLC to to investors so the first thing is what is it as you've seen one it tends to be a fairly thick document 50 pages 70 pages you know sometimes they come a little bit briefer but it's this quasi legal quasi business risk mitigation tool it's this document that talks about what it is the business is going to do what you're offering to investors the risks involved we'll get into a few more details about the sections but fundamentally it's this document to lay out and show a court later on that here's what we told the investor we gave them all the information that we could think of we talked about the risks we just laid out the deal on paper so it's tends to be pretty heavily lowered they take quite a bit of time to do them right but that's what it is around a high level it looks a little like a business plan but it's a little less readable it's a little bit more legalese a little bit more about like the legal things and how things are gonna work that's what it is when do you use them so the first point is it's pretty rare when we're raising I mean number one it's a private placement memorandum so this is for when you offer private securities whenever you offer stock or the securities in the u.s. to investors you need to either register those securities with the Securities Exchange Commission and state security commissions or you need of exemptions from doing so so when you're raised in a couple of one thousand dollars a couple million bucks whatever it is it just wouldn't make any sense to register the securities with the SEC that's the idea is that that's what going public basically is it's a very involved very expensive time-consuming process so when you issue securities in a private context we look for exemptions we look for inability to do it without registering and there's a lot of exemptions they each have their own rules and nuances but that's what we're doing and so the PPM is for private placement basically a offering of securities private securities to investors so that's the context it is rare that you have to produce a ppm it's definitely best practice in certain contexts and it's definitely something you should do in certain contexts but it's pretty rare you have to do it so how do you know if you have to do it or not so that depends on the amount of money you're raising and who you're raising it from and the exemptions that you're using it would be you know if you're raising a hundred thousand dollars and you've got to spend 15 grand on an attorney like me to do it which might make you fall out of your seat but it's pretty inexpensive to do a lot of custom work on a ppm compared to the market but but that's again it's not cheap so if you had to spend that kind of money to raise a hundred thousand it doesn't make a lot of sense so you're going to number one if you're not raising a lot of money and you raise it from people you know well you're generally trying to figure out a way to not have to do one I know how to give you better advice than that but some of it is just depends on the risk profile of the deal now if you're raising someone came to me a couple weeks ago and said I do I have to do a ppm if I'm raising a hundred million dollars for this idea and it you have to do a ppm there's a hundred billion dollars like I mean spending 20 grand a lawyer's like I mean it sounds like a lot if you raise it 100 if you're one hundred million dollars you're not willing to do that like I think you gotta have your head examined I mean it's this is protecting you so try to have a conversation with clients about like you know what's good for them you do it when you're raising a lot of money because it's a it's a drop in the bucket to get the protection the risk to protect a little bit right then there's things like how many people you raise the money from ah if you're raising money from a lot of people the deal starts to look a lot less likely private offering it doesn't look like an IPO but like at some point it doesn't look like what the SEC might call private offering so you want to jump through certain hoops and to jump through those hoops sometimes you need to give the investors the kind of information that's in a ppm so some of that's the number of investors some of it is the is the industry you're in so technology companies raising money from angel investors and venture capitalists I was a venture capitalist during calm 1.0 I think out of 500 business plans I saw and the first year was doing that maybe I said to PPM's like that is not normal their venture capitals aren't in the business of suing people you got a really scrum over there in the business of taking risks theory or used to losses it's okay now the ppm helps avoid an argument that you said something or misled them that there's there's a benefit of it but it's just not normal in that world to use a ppm in restaurant raises or real estate funds hedge funds you know stuff like that definitely very very common they're kind of expected you will often see films that work to help people raise money on a major motion picture a couple years going yeah we did a ppm because the investors are asking about it so you kind of raise red flags if you don't give it to them so again it's kind of a complicated question but it's rare you have to do it it's really a matter of like you know having a good conversation open conversation with someone like me about like you know should I have show tonight what goes in it let me give you a handful of categories of things number one is you will usually have a little bit of an opening summary about the opportunity you will typically have a term sheet that lays out the key points of what you're offering and the deal is there a preferential return how much does someone have to pay for a share of stock or a one percent interest in you know I'll see that kind of thing you will go into a section that's a deeper dive about the company what it's going to do the shape it's in right now the milestones at where it's at the use of the proceeds really important how are you gonna put that money to work you typically will build in some flexibility there you know this isn't set in stone we need to be fluid as things develop but you still want to give investors a good idea of where their money's going to go backgrounds of the management what have they done not just whether they're well but if they have a huge failure you want to disclose it I know there's a lot of concern from clients sometimes but like this is about

Thanks for your comment Gaylord Krovious, have a nice day.
- Ethan Dottavio, Staff Member

hey it's Nick Hodge you're Nick's nope there are some questions that have repeatedly from various members so I know more than one of you have these questions I thought I'd just take a couple of minutes today and respond to the questions that I received most frequently and also provide a little bit more guidance to those of you who may be new to the world of private placements I know it can seem a little bit daunting at first with the amount of paperwork and necessary signatures and things of that nature so I want to just make it as easy as possible and guide you through the process as well as I can if you have additional concerns or questions you're welcome to write in to outsider club customer service anytime reply to any email you get from Nick's notebook with a question or just use the contact form on the next notebook website so I hope the following questions and the answers I provide give you a little bit more insight and overview into the world of private placements a private placement is just like it sounds like when a company needs to raise money they can do it in the private market as opposed to the public market so they can do it faster and so they can avoid fees if they raise money privately like we do through Nick's notebook they can avoid having to register the Securities and they can also avoid having to file a prospectus and so they can get the capital from investors hands from our hands into their coffers into the company at a much faster pace than they would if it were to be raised publicly in a private placement like we fund through Nick's notebook you fund a company directly so they issue the securities to you in that case they become the issuer so you're buying the securities or you're buying the shares directly from the company itself when this happens when you get an alert from Nick's notebook you'll typically contact someone at the company in a managerial or in a director position and they'll get you the necessary paperwork that's typically called subscription documents it'll tell you what company you're investing in and what the terms of the deal are at what price the shares are being issued if there is a warrant and what the terms of that warrant are if there is one so the documentation is just a subscription document you'll get from the company that I put you in contact with on a case by case basis private placements can be lucrative because in many cases we the investors are taking on more risk and so there needs to be incentives for us to provide the company with capital in some cases that can be a discount to market where you're issued the shares at a discounted price to what their trading publicly or in other cases it can be a warrant to sweeten the pot so you either get a half warrant or a full warrant that allows you to buy more shares at a future date at a specified price in most cases you'll need to be an accredited investor to participate in these deals and there's various ways you can meet the requirements to become an accredited investor the two most common are net worth in which you have a net worth not including your house of 1 million dollars or if you're an individual if you make $200,000 in income annually or if you're married $300,000 in income annually there are many other exemptions for which you can become a credit investor so make sure you ask your broker or you check with the IRS or other governing bodies website to make sure you're accredited often times there is no minimum to invest in the deals that I give you as a member of Nick's notebook but you want to make sure of a couple of things you want to make sure one that it's worth your time and money and two that it's worth the company's time and money remember this is sometimes not a cheap process for you or the company you'll need to be wiring funds you need to fill out subscription documents that are sometimes 30 or 40 pages in length and then you'll have to parlay with the broker who would turn left a parlay with a transfer agent and so you really want to make sure that the the amount of capital involved is worth everybody's time including your own and that's a different number for everybody but typically I would say you don't want to invest in these private placements with less than $5,000 if that's the amount of capital you or you're looking to invest that's fine but you should be buying I think that amount in the open market as opposed to you know trying to invest in a private placement with that amount of capital and involving all these other offices and people you absolutely need a full-service broker to participate in these deals I recommend one on the NYX notebook site under the getting started section of the website so you can see that recommendation there but there's a whole litany of brokers in the US and Canada that handle private placements it's really tough to do these on your own because there's so many moving parts involved once you wire the funds or have your broker wire wire the funds you also need to complete the subscription documents and then the issuer or the company that you're investing in will get a copy of those documents and so will their transfer agent and this gets to involve things about removing the legend off of your shares so they can become free trading after the the four month hold period and it's just way too complex for an individual to do on their own and in fact it may be near impossible so you want to really make sure you have a high quality full-service broker who can take care of all these steps for you really all you want to be doing when I recommend a placement in Nick's notebook is filling out and subside and signing the subscription documents telling the issuer how many shares you want and at what price and then wiring them the funds other than that your broker should be taking care of everything for you you know it's not hard to find private placements a company has to file with the the Securities Exchange when they're going to be raising money so you can sift through filings and know on a daily basis when a new private placement becomes open the thing that you really need to look out for in the service that Nick's notebook provides is a bit of vetting so I know in some cases the executives behind these deals either I've invested in other companies that they've done or I know of other companies that they've been behind that have been successful in the past or I talked to people about the assets we're investing in if it's a meadow asset or mining asset I'll talk to a geologist or I'll talk to you know another high net worth investors who is invested in similar deals or deals with the same people so really I bet the pedigree and it's just my network that is afforded me the chance to invest in these private placements the network that I built over the the past decade in this industry and so I see deals like this all the time and you may as well but the secret sauce if you will is sort of figuring out which deals are going to be better than other deals and that's sort of the service I provide to you you know one to sell is always the million dollar question everybody has their own paramete

Thanks Phillip your participation is very much appreciated
- Ethan Dottavio

About the author

Ethan Dottavio

I've studied common law at Georgia Southern University in Statesboro and I am an expert in macroeconomics. I usually feel chipper. My previous job was political scientist I held this position for 7 years, I love talking about railway modelling and mindfulness. Huge fan of Ellen Page I practice american football and collect classic cars.