Business Plan vs. Private Placement Memorandum vs. Prospectus
Prospectus.com is the world leader in drafting and writing business plans, private placement memorandums (PPM) and prospectuses for both private and public offerings.
There are many documents that a company needs to raise capital. The most popular and utilized offering documents written during the funding process is the business plan, the private placement memorandum or the prospectus, and often a combination of all three. Which offering document or plan should you write?
A prerequisite for any company seeking to grow – whether they need to expand their business or raise capital – is to write a business plan. The business plan of a company is the single most important document for any early stage company wanting to launch their business. Without such a plan, it is unlikely the company has done their homework and therefore will not be prepared to successfully launch or penetrate their market (certainly they will not be able to raise money from investors). Planning one’s business, creating a road map and clearly defining one’s opportunities, goals and financial needs to enter a market is critical for success. Key features of a business plan include but are not limited to:
- Executive Summary: one page summary of the business and its goals;
- Value Proposition: how your services or products solve needed problems or brings added value;
- Marketing Plan: includes your marketing strategies as well as the overall market conditions, competition, target markets;
- Action Plan: how you plan on getting to market and making money;
- Financials: budgets and proforma statements.
Once a company has written a business plan and is planning on selling securities such as stocks, shares or units, as well as bonds or notes, a disclosure document like the private placement memorandum should be written. The PPM, as its also referred to, will disclose in the document the type of securities being offered, the amount of capital sought, risk factors, state and global securities rules and other features like in-depth financial. A private placement memorandum is used in private placement offerings, i.e. they are not written for a public market or offering. The PPM also includes the subscription agreement, which is the contract of sorts between the issuing company and the investor. Key features of a private placement memorandum include but are not limited to:
- Terms of the Offering: what you are offering investors for their capital, such as equity or debt securities;
- Securities Disclosure: SEC or country and state disclosures, depending on country and region;
- Offering Particulars: details of the type securities such as preferred shares, number of shares, amount and related specifics;
- Risk Factors: a PPM will list the relevant general and specific risk of the company;
- Subscription Agreement: the contract between the issuer and the buyer of the securities.
A prospectus is somewhat used as an interchangeable term. Often a business plan is referred to as a prospectus, as is the private placement memorandum. In many cases, the prospectus is a public disclosure document that, like the private placement memorandum, is used to disclose the company’s data prior to a public listing of securities (with the goal in mid to raise capital publicly). However, prospectuses are also used in the private placement market and often the term itself is employed in lieu of an offering memorandum or a PPM. Referring to your business plan or your private placement memorandum a “prospectus” is not inaccurate, but it may not be precise. In most cases the prospectus is referred to when a company wishes to get listed on a stock exchange. Key features of a prospectus include but are not limited to:
- Terms of the Offering: includes the dollar amount (or other currency) that is being raised in return for issuing securities;
- Regulation Disclosures: includes general state and country specific rules for raising capital, and if a public listing on a stock exchange is forthcoming compliance rules for selling publicly;
- Management Team: biographies and information regarding the team (also in a business plan and PPM);
- Risk Factors: the prospectus will outline the risks of the business, in both specific and general ways;
- Subscription Procedures: in a private offering this would be through the subscription agreement and investor questionnaire. If via a public offering information on how to subscribe for the securities.
Whether you are raising private capital or set to launch a publicly listed company on a stock exchange, a business plan and a disclosure document is required. The business plan shows one has done their due diligence and learned about the market. The private placement memorandum or prospectus is for the regulatory aspect of your business and can added needed legal protections to a company and to one’s personal liability.
Our team at Prospectus.com is the world leader in offering document preparation and the Wall Street recognized firm that takes an active role the success of our clients. Reach out to us anytime for a free consultation.
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