In the securities arena, Carnahan, Evans, Cantwell & Brown prepare private placement memorandums, subscription agreements, investor questionnaires, prospecti, and other documentation and correspondence related to investor relations. The firm also provides advice to investors who are considering investing in such private ventures.
Private placement occurs when a company privately offers securities to a limited number of investors. Because it is not a public offering, in many cases it does not need to be registered with the Securities and Exchange Commission (SEC). Many small businesses choose to offer private placements, because they are less expensive and time-consuming than public offerings. And now, crowdfunding is an option for consideration.
When soliciting prospective investors, a company must prepare a series of documents to provide the investor with information about the company and the investment. These materials might include a subscription agreement and prospectus (private placement memorandum):
Private Placement Memorandum
When selling a stock or security through private placement, a private placement memorandum (PPM) is given to prospective investors. In addition to the separate business plan, the document provides a description of the company selling the securities, the terms of the offering, the investment risk, and more. Also known as an offering memorandum or an offering document, a PPM is usually only used when a security is sold using an exemption to registration under federal or state law. Required disclosures vary based on a variety of factors including the exception used, the investors the company is targeting, and the complexity of the terms of the investment.
Subscription Agreement and Investor Questionnaire
To invest in a limited partnership, limited liability company or corporation, an investor agrees to do so through a subscription agreement after completing an investor questionnaire. Typically, the general partner, manager or officers will have, through counsel, created forms for this purpose to evaluate the investor and decide whether or not they are suitable for the investment. Once signed by the investor, the entity must approve the agreement, which will include the company’s promise to sell a specific number of units, shares or percentage interest at a specific price as well as the investor’s promise to pay that price.
A prospectus is a formal legal document that provides details about an investment offering, disclosing all of the important facts that prospective investors will need to make a decision regarding the investment. This document, if registration is required, must be filed with the Securities and Exchange Commission. A preliminary prospectus is offered first, to help the investor make up their mind. The final prospectus is printed after the deal has been made, and it includes finalized details including the number of shares issued and the exact offering price.
Are you considering a private placement? Carnahan, Evans, Cantwell & Brown can help you understand the risks, rewards and costs. Private placements and public offerings both have advantages and disadvantages, so you will need to consider your requirements and preferences regarding timelines, expense, complexity, distributions, additional contributions and privacy.
If you decide to pursue private placement, we can prepare the documents and help you complete the forms needed to form relationships with investors. If you decide to pursue a public offering, we will coordinate our services with co-counsel who concentrate their practice on such offerings, with CECB addressing all other corporate legal needs.
For assistance with private securities offerings and placements, whether as an offering company or an investor, please call Chip Sheppard at Carnahan, Evans, Cantwell & Brown at 417-447-4400. We look forward to hearing from you!