Financing Your Small Business

HOW TO…Begin Drafting a Private Placement Memorandum

Work closely with an attorney that specializes in securities law to draft your PPM. To begin the process, organize and provide copies of the the following documents to your attorney:

□ articles of organization and operating agreement for an LLC;

□ articles of incorporation and bylaws for a corporation;

□ minutes of board of directors and shareholder meetings for a corporation;

business plan and financial projections;

□ financial statements (for two years or from inception);

□ a list of how you intend to spend the money raised in the offering (use of proceeds);

□ any promissory notes or debt instruments the company has entered into;

□ joint venture agreements or contracts with strategic partners (companies depended on to make, sell, or distribute products or services);

□ any employment and work made for hire agreements;

□ documentation of any litigation the company is involved in;

□ any real and material personal property owned by the company;

□ documentation of any intellectual property (patents, trademarks, or copy rights);

□ any intellectual property assignments, licenses, or agreements pertaining to copyright, trademark, trade secret, or patent filings, including vendor agreements; and,

□ all significant contracts or agreements.

No General Advertising or General Solicitation of Securities.

In a private placement, the company or anyone acting on behalf of the com­pany may not offer or sell the securities through any form of general adver­tising or solicitation. Two examples of these types of prohibited activities are set forth in Regulation D.

1. Any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast over televi­sion or radio.

2. Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

General solicitation is allowed for registered (public) offerings, but not for private placements. By their nature, private placements must be sold to a limited number of investors. If the company or its principals have a pre­existing relationship with those persons to whom the offering is made, then prohibitions against general solicitation do not apply.

Consequently, an investor meeting could be held to discuss the offer, as long as the attendees were not solicited through general advertising and the company or its principals had a preexisting relationship with the attendees.

Do not post a PPM on your company's website. Allowing unrestricted access to your PPM on the Internet is a proven way of receiving a warning letter from the enforcement division of the SEC or your state securities administrator. It is viewed as a violation of the prohibition against general solicitation and advertising. You can post your PPM on the Internet if (1) the offering is to accredited investors only who have completed an investor questionnaire and (2) they have been prescreened by the company prior to being given access to the PPM. Access to the PPM should be password-pro­tected with a record kept of all persons to whom access is granted. Registered offerings, which are not subject to the general solicitation rules, can be sold through the Internet under certain circumstances.

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