With our help, you will be able to raise substantial capital without the hassles of SEC registration. Please read on to learn more about private placements and the services we offer.
What is a private placement?
A private placement is the issuance of restricted securities sold privately to qualified buyers. These securities, usually in the form of shares or debt instruments, cannot be traded on the open market, and are not registered with the Securities and Exchange Commission. You cannot privately place securities unless you have first filed a Form D filing for those securities with the SEC.
What are the benefits of a private placement?
Private placements are a cost-effective method for small businesses to raise capital without "going public" through an initial public offering. A private placement of equity or debt will save you time and money as you raise capital from a limited number of investors. It is useful when a company has not yet established itself to appeal to a broad spectrum of investors and wants to avoid the expense of a public offering. Because private placements do not require underwriters, they are less expensive and time consuming. Additionally, risky ventures or start-up firms may have access to capital only via private placements.
With a private placement, you can carefully choose your investors, ensuring that they have compatible goals and interests. Unlike public stock offerings, private placements do not force a small business to give up its private status.
In sum, issuing private placements is cheaper and less complicated than issuing publicly-traded securities.
How does a private placement work?
The SEC’s Regulation D describes how certain securities can avoid registration before sale via “safe-harbor” exemptions. Regulation D exemptions are listed in its sections 504, 505, and 506. Through these exemptions, you can privately sell securities without registration, but you need to first file a number of Form D legal documents with the SEC.
That’s where we come in. Our expertise in preparing and filing these documents is your gateway to capital formation without submitting to the expensive and time-consuming SEC registration process.
Are you qualified to issue a private placement?
At PrivatePlacements.net, we are expert at determining the best way to qualify our clients’ offerings. We will analyze your firm and help you apply the proper exemption. Here is a brief summary of the three Regulation D exemptions recognized by the SEC:
- Section 504: Covers the Small Corporate Offering Registration, or SCOR. SCOR gives an exemption to private companies that raise no more than $1 million in any 12-month period through the sale of stock. There are no restrictions on the number or types of investors and the stock may be freely traded. It is available in all states except Delaware, Florida, Hawaii, and Nebraska.
- Section 505: Enables a small business to sell up to $5 million in stock during a 12-month period to an unlimited number of investors, provided that no more than 35 of them are non-accredited. To be accredited, an investor must have sufficient assets or income to make such an investment. According to the SEC rules, individual investors must have either $1 million in assets (other than their home and car) or $200,000 in net annual personal income, while institutions must hold $5 million in assets. The securities cannot be freely traded.
- Section 506: Allows a company to sell unlimited securities to an unlimited number of investors, provided that no more than 35 of them are non-accredited. Under Section 506, investors must be sophisticated. The securities cannot be freely traded. Privately-placed real estate deals are usually filed using a Section 506 exemption.
Is reporting the information necessary for a private placement filing complicated?
Oh yes! For example:
“The amount and type of financial and non-financial reporting required varies depending on the size of the offering. Different requirements apply to offerings up to $2 million, between $2 million and $7.5 million and above $7.5 million. Offerings of up to $2 million require disclosure of the type required Item 310 of Regulation S-B. Those between $2 million and $7.5 million require distribution of the kind of information called for in Part I of Registration Form SB-2. If Form SB-2 is unavailable (e.g., if the issuer is a reporting company), the company must supply the kind of information "required in Part I of a registration statement filed under the 33 Act on the form the issuer would be entitled to use." (For most companies this will be Registration Form S-1.) Companies offering more than $7.5 million worth of securities must supply information of the type required in Part I of a registration statement.”
Don’t panic, PrivatePlacements.net has you covered! Our expert legal team is familiar with all relevant filing requirements. Remember, only qualified professionals can assure management that the company’s security offering has been conducted in a manner that will not create significant liabilities for the company and its management.
What’s in a Private Placement Memorandum?
A Private Placement Memorandum is the major component of an SEC Form D filing. It is an offering prospectus that discloses relevant information about the offered securities to potential buyers, including the offering’s terms, allocation of proceeds, risk factors (company and industry based), and other material facts.
Thus, the PPM is a dense document jam-packed with highly technical information. The following is an abridged checklist of its contents:
- Cover Page
- Securities Legends
- Suitability Standards for Investors
- Summary of the Securities Offering
- Risk Factors
- Capitalization of the Company
- Use of Proceeds from the Securities Offering
- Plan of Distribution of the Securities
- Selected Financial Data
- Analysis of Financial Condition and Results of Operation
- The Business of the Company
- Management and Compensation
- Certain Transactions (transactions between the Company and its shareholders, officers, directors or affiliates)
- Principal Shareholders
- Terms of the Securities Offered
- Description of Capital Stock of the Company
- Tax Matters
- Legal Matters
- Documents Available for Inspection
- Financial Statements
Don’t feel like assembling all of this material on your own? You don’t have to! PrivatePlacements.net does all the heavy lifting for you. Our many years of experience creating and filing PPMs frees you up to concentrate on your business rather than on the paperwork.
What will PrivatePlacements.net do for you?
PrivatePlacements.net One Stop Shop Program provides a full array of services to handle all aspects of your private placements needs:
- We will consult with you regarding your financing needs and advise you on your alternatives. This is important because many of our competitors take a cookie-cutter approach to Private Placement Memoranda, using a generalized template that is often noncompliant with SEC and/or state requirements. We approach each offering on an individual basis, providing you with a custom solution that will be compliant with all legal requirements.
- We will work with our network of financial specialists to optimize the structure of you private placement deal, taking into consideration market demand, fees, pricing, liquidity, and risk sensitivity. We will help you determine the mix of equity and debt obligations that are optimal for your offering. We will assist you in structuring the terms, rates, and fees of debt offerings. The result will be a deal that maximizes your return within current market constraints, and meets the risk/reward requirements of investors. This is important because issuers often return to the private placement market periodically, and thus need to establish a reputation for fair dealing in order to successfully sell future issues.
- We will introduce you to an array of qualified potential investors, including private investor groups, hedge funds, and accredited prime brokers.
- We can provide website development services to help you market your private placements to the qualified investor community via the Internet.
- We will prepare the Form D legal documents you need, and file them with the SEC. Specifically, PrivatePlacements.net will create and file the following documents:
- Private Placement Memorandum – We described the PPM a little earlier. We note here that there are several different forms of the PPM. We always prepare Form 1A, which is the highest standard of disclosure with the SEC. We also ensure that all required exhibits are included, such as financial statements, contract obligations, and other material information. If the offering is in the form of debt, we will also include the note structure and the promissory note.
- Subscription Agreement - a contract for the exchange of a specified face value of securities at a specified price. It includes an investor statement attesting to the receipt and review of the Private Placement Memorandum, awareness of risk, and suitability to invest in the securities.
- Promissory Note Agreement – the terms of any debt obligations that are to be privately placed.
- Investor Questionnaires - obtains information about the purchaser’s employment and business experience. The questionnaire establishes that the investor is qualified to purchase the securities and has sophisticated knowledge of the risks involved.
- SEC Form D Federal Compliance Filing: this is an 8-page SEC compliance filing, including instructions for completion of the filing, the filing timeframe, and other information.
- We handle any state-required filings, such as state blue-sky filings, which are state statutes that prescribe the methods by which stocks and other securities may be sold within the state. These statutes generally prohibit companies from selling securities unless the sale is registered with the state's securities commission or fits into one of the exemptions from registration provided by the state's blue-sky statute. Issuers should be certain that the offer and sale will comply with the securities laws of the state in which the company is incorporated and in the states of residence of each person to whom the shares are offered. Failure to comply with the requirements of applicable blue sky laws can subject a company and its principals to substantial liability. PrivatePlacements.net will help to ensure that you have correctly complied with all relevant state laws.
- We offer any legal, accounting, and administrative services you may need. This gives smaller issuers access to the same professional services enjoyed by larger issuers. For example, many privately-placed stock certificates must be stamped with a legend that marks the stock as restricted. The legend should state that the securities represented by the certificate cannot be transferred unless pursuant to an effective registration statement or an exemption from the registration requirements. The issuer should also instruct its transfer agent not to transfer any of the securities (containing the legend or not) without its counsel’s written approval. As the certificates age, they become unrestricted, and the certificates must have the legends removed so that they can be publically traded. Tracking the status of certificates over time and maintaining their proper labeling is one of the many administrative services we offer to the private placements community.
What about real estate deals?
PrivatePlacements.net handles preparation of Real Estate PPMs using Regulation D Rule 506. Any amount of principal is allowed. The private placement vehicle is set up as a capital pooling fund and provides for investing in multiple projects simultaneously. Many real estate professionals and developers use Real Estate PPMs to raise equity capital and then utilize the enhanced balance sheet of the company post-offering to qualify for real estate loans. What should you do next?
Fill out the PrivatePlacements.net information form so that we may contact you right away. Our team of professionals is standing by to help you make your capital formation plans a reality.