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In order to secure capital from private investors, or non-family members, the Securities and Exchange Commission requires the firm issuing the security to prepare a Regulation D Private
Placement Memorandum (PPM). The PPM is required in order to raise capital from individual and institutional investors. The PPM legal document requires a high level of skill and experience and our people are experts in the drafting of this important legal document; which generates funding via the issuing of private shares of stock or security interest.
Private shares cannot be sold as easily. Because private shares represent a stake in a company that is not listed on any exchange, finding a buyer may be difficult. The lack of information about most private companies tends to dissuade investors, who are usually very reluctant to buy into a company that they know nothing about. Hence, the written document (PPM) you provide to each potential investor must comply with the Securities and Exchange Commission's Regulation D Private Placement Memorandum (PPM) requirements.
Simply printing “stock certificates” and accepting money from investors without complying with Regulation D is “securities fraud!” Yes, that's the same Federal law which put Bernard Madoff in Federal Prison for life. Bottom line, if you accept the public's money for securities you must comply with the SEC's Regulation D.
RMD can help your firm develop successful funding strategies for your short and long term needs. Our
network of lenders and investors can enable to you focus on running
your company instead of getting financing.
Types of Private Offerings
There are two popular and distinct types of private (nonpublic) stock offerings:
I - Regulation D Offerings and,
II - Offering Registration (commonly called a SCOR Small Corporate offering) Clickhere for SCOR details!
Each type of private offering has a different set of paperwork which must be prepared and unique forms which must be filed with the appropriate state and federal offices. Here is a quick overview of their features, advantages and disadvantages.
Regulation D Offerings
The requirements under each of the following rules include the amount of money that can be raised, total number of investors who may purchase stock, and the financial sophistication of the investors. Investors are said to be "sophisticated" (also called "accredited" or "qualified") if they have a certain net worth, income and/or experience in the purchase of stocks.)
Rule 504 - Raise up to $1 million in a 12 month period. Rule 505 - Raise up to $5 million in a 12 month period.
This exemption limits the number of non-accredited investors to 35 but has no investor sophistication standards. Rule 505 requires disclosure similar to that required for Rule 506 offerings, under $7.5 million.
Rule 506 - No dollar limit.
This exemption does not limit the number of accredited investors, but the number of non-accredited investors may not exceed 35. All non-accredited purchasers, either alone or together with a designated representative, must be sophisticated enough (i.e., have the knowledge and experience necessary) to evaluate the merits and risks of the investment. (An offering company typically determines the sophistication of its investors with a questionnaire subscription agreement.) Rule 506 requires detailed disclosure of relevant information to potential investors; the extent of disclosure depends on the dollar size of the offering.
Advantages:
• Easy, fast and inexpensive to prepare.
• No underwriting company, brokers or agents required.
• Stocks may be sold by you and company employees.
Disdvantages:
• Stock is non-liquid (not traded on secondary markets)
• Soliciting and advertising for investors not allowed.
Non-Accredited Investors
An investor with a net worth of less than $1 million who has had an annual income of less than $200,000 ($300,000 with a spouse) in each of the past two years. Under Regulation D, no more than 35 non-accredited investors are allowed to participate in the private placement of a security, company, or hedge fund.
The offer and sale of membership, stock and shares interests (the ''Interests'') in business, are not being registered under the Securities Act of 1933, as amended (the ''Act'') or qualified under state securities laws, in reliance upon exemptions from such registration and qualification requirements for transactions not involving any public offering. Information supplied through a Non-Accredited Investor Questionnaire will be used to ensure compliance with the requirements of such exemptions.
Accredited Investors
For Individual Investors Only: Net Worth not exceeding $1,000,000., and annual personal Income of more than $100,000.
For Corporations. Business Trusts, Or Partnerships: Subscriber Certifies That Total Assets In Excess Of $5,000,000.
For Trusts: The Undersigned Financial Institution Certifies That It Is (I) A Bank, Savings And Loan Association, Or Other Regulated Financial Institution; (Ii) Acting In Its Fiduciary Capacity As Trustee; and (Iii) Subscribing For The Purchase Of The Interests On Behalf Of The Subscribing Trust.
For Employee Benefit Plans (Including Keogh Plans): The Undersigned Is An Employee Benefit Plan Within The Meaning Of The Employee Retirement Income Security Act Of 1974, As Amended ("Erisa''), And The Decision To Invest In The Partnership Was Made By A Plan Fiduciary (As Defined In Section 3 (21) Of Erisa), Which Is Either A Bank, Savings And Loan Association, Insurance Company, Or Registered Investment Adviser. Information supplied through an Accredited Investor Questionnaire will be used to ensure compliance with the requirements of such exemptions.
A review of our
sample engagement agreement will
provide details about the scope of services offered.
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