The New York Law Blog: Business Plan or Private Placement Memorandum? An Introduction
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Wednesday, June 1, 2016

Business Plan or Private Placement Memorandum? An Introduction

NY Business Planning & Investment
(Editor's Note - This introductory article is the first in a series of blog posts that will explore how small businesses in New York can look to grow through outside investment. While these articles are instructive in nature, we always urge that you consult an attorney before making any decisions! We here at IPG stand ready to help, so please contact us!)

Everyone who goes into business thinks that they have the next "big idea." If only you had the capital to take off.  But how do you get from point A to point B?   And how do you get your hands on that sweet investment capital that you so desperately need 

There are two tools out there that can be used to stir interest and attract investment.   

A business plan is a document that describes the fundamentals of your business idea and provides financial data to show that you will make good money. The content of any given business plan depends on the audience that will read it - potential investors, lenders, or even just for yourself to use as a tool to measure your progress.

A private placement memorandum (PPM) sometimes called an "offering memorandum," is a  document created by a company and provided to prospective qualified investors to drive interest in purchasing stock in your company. Owners of privately-held corporations use PPMs in “private” transactions for securities not registered under applicable federal or state law for "public" sale on a stock exchange or other market. These sales are exempt from registration, but because of their highly-speculative nature and the high risk involved to investors, the material terms of the offering are disclosed under SEC Regulation D and are only open to qualified investors.  

The PPM outlines the company selling the securities, the terms of the offering, the risks of the investment, and other disclosure, which vary depending on the complexity of the offering.

Business plans and PPMs serve different functions. A business plan is basically a marketing document created to introduce and promote your company, containing forward-looking information and projections. A PPM is a disclosure document descriptive in nature that allows an investor to decide on the merits of investing in your company. 

The presentation within a business plan outlines market analysis, target customer / audience, potentials for market growth, any potential competition, anticipated streams of revenue, and strategic partnerships. The presentation within a PPM may contain some marketing aspects, but is more factual and concrete in that it must address external and internal risks facing the company that an investor must weigh.  If a business plan is the advertisement, the PPM is the fine print.  
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.