Have You Heard About a Private Placement Offering?
Any privately held corporation or limited liability company in the United States that intends to offer any equity in the form of selling stocks or membership units to a friend, relative, employee, associate, private investor, angel investor or venture capitalists is prohibited from doing such without the appropriate Security and Exchange Commission (SEC) Exemption. The Exemptions are known as Reg D Series Offerings and depending on the amount to be raised will determine which series will be designated. Most commonly the offerings are Reg D 504, 505 or 506.
The SEC defines this act as a securities offering and the Offeree must be in compliance with the proper Regulation D Series memorandum that is required to be provided to a prospective investor and additionally follow the particular restrictions of that offering.
Any SEC violation could be punishable by fines and/or prosecution for criminal acts. The officers, directors or managing members could be personally liable and responsible for the violations of the company.
- Estimates are that over $1 trillion will be raised through private placement offering in 2010.
- Private investors do not expect unreasonable returns.
- Any business entity in nearly every industry can utilize a private placement offering to raise capital.
- No individual credit checks or requirements necessary.
- A properly prepared private placement offering and memorandum can captures the attention and impress a private investor.
- A standard private placement offering is cost effective and economical.
- In most instances, the company has immediate access to funds raised.
- Professional broker/dealers are available to assist in the promotions, sales and placement of private placement offerings.
- Usually a company is marketing its offering within a matter of weeks after contracting for the preparation services.
- No stressful monthly installment payments as in a loan from a bank or individual.
- So long as the company is in full SEC compliance, there are no personal liabilities or risks to officers, directors or other individuals associated with the offering.
- A great way to finance a company if the needs are from $1 million to $10 millions.
- Private investors & institutions are more secured owning stocks and membership units.
How do I qualify for a Private Placement Offering?
It is suggested that anyone entering into a private placement offering consult with someone that has experiences in the field whether that be a SEC consultant, SEC broker or SEC attorney. Have some degree of fundamental understand of the regulations, guidelines and laws associated with an offering. Be familiar with the basic procedural steps that must be taken before the capital is raised.
- A Complete and Comprehensive Business Plan or Executive Summary
- Private Placement Memorandum (PPM)
- Formation of Limited Liability Company (LLC) or Articles of Incorporation
- Employee Identification Number (EIN)
- Limited Liability Regulations and Operating Agreement
- Security Exchange Commission (SEC) Form D
- Subscription Agreement
- Marketing Tools
Where does the money come from?
There are many sources of capital available to those who know how to find it and properly represent the offering in a professional and compliance manner. Some of those ways are:
- Small Company Offering Registration (SCOR) – under SEC Reg D
- Direct Public Offering (DPO)
- Investment Bankers
- Informal Angel Capital Investors (AC)
- Formal Venture Capital Funds (VC)
- Small Business Investment Companies (SBIC)
- Investment Clubs
- Foreign Investors
- Broker/Dealer Investor Client Base