Offering Memorandum for Mutual Fund
Our team at Prospectus.com can assist with your Offering Memorandum offering needs for a mutual fund. Mutual funds seeking to raise capital and sell securities issue a OM, or Offering Memorandum. The OM is given to investors for their investment consideration. Mutual funds are incorporated in many jurisdiction, both on shore and offshore. Our firm has been involved in mutual fund private placement offerings for over 20 years and our attorneys and consultants have written more than 5,000 offering documents. If your company is considering raising capital for your company and need a mutual fund Offering Memorandum for investment purposes reach out to us any time.
What is Offering Memorandum
A Offering Memorandum is a disclosure document that is given to investors for their investment consideration. A OM, as it’s also known, will highlight such terms as the offering itself, the price of the securities (whether its equity or debt, i.e. stocks or bonds), and it will detail the management team, tax implications and many other regulatory disclosures. As opposed to a public offering, an Offering Memorandum is used for a ‘private’ offering (a prospectus would be used for a public offering, for example). Investors in a OM can vary from accredited to non-accredited investors, venture capital, private equity and many types. The Offering Memorandum is the most popular disclosure document used to raise capital worldwide.
Types of Offering Memorandums
There are many varying types of Offering Memorandums. The type of offering will determine the specific nature of the OM. The two-main private placement offering memorandum documents used throughout the world are an equity private placement or a debt private placement.
- Equity: In an equity offering, a company will sell an ownership stake. The most common type of equity Offering Memorandum is one that sells shares or stock in a company. In addition, an limited liability company (LLC) or a limited partnership (LP) may sell units, or limited partnership interests of the company. Some issue sweeteners, like preferred shares or preferred stock.
- Debt: In a debt offering, a company will sell securities such as a bond or a note. In a debt Offering Memorandum, a company will detail the securities being sold, such as the interest rate, maturity date, and other terms of the notes or bonds. In other types of debt issuance offering memorandums a company might offer convertible bonds or convertible notes. In this type of transaction, the debt securities will convert to equity at a pre-determined date.
- Rules: In addition to debt or equity, there are various national and in some cases, international rules that apply to each Offering Memorandum. For example, there is Rule 504, 505 and 506 of Regulation D (Reg D). Included in Reg D is also 506b and 506c offerings. There is also Regulation A (Reg A). A popular rule in the equity and debt private placement sphere is Regulation S (Reg S) and Rule 144A.
Whether you require an equity OM or a debt Offering Memorandum, our team at Prospectus.com can assist.
Sections of an Offering Memorandum
There are many features and sections that go into the writing of an Offering Memorandum that is geared for raising capital. Here are just a few segments of the OM:
- Executive Summary: an executive summary is normally a one or two-page summary of the business plan. It’s always suggested to include an executive summary in a private placement offering memorandum document as this help explain what the business does.
- Jurisdictional Legends: the jurisdictional legends are specific country and state regulations governing the sale of securities in each jurisdiction. If it’s a US or Reg D offering, the jurisdictional legend will comprise of various states and rules for raising capital for selling stocks or bonds. If a company is raising capital worldwide they will use international legends that are country specific. Each country has their own rules regarding the flow of capital from outside investors and local investors.
- Terms of the Offering: the terms of the offering will highlight the relevant features of the issuance. Included in the offering term section will be the stock or share price, or bond or note price, investors requirements, use of proceeds, some risks factors, and, if a debt offering, the maturity date and interest rate. The terms of the offering are the main component of a Offering Memorandum.
- Investor Suitability: the investor suitability section of a OM will deal with investor standards. For example, if a company is raising capital and is required to only accept accredited investors then this section would detail that. Or if the suitability standards allow for non-accredited investors, or non-US investors under Regulation S (Reg S), or US investors in a 144A offering, the investor suitability section will detail that, which may include net worth requirements for each investor.
- Risk Factors: the risk factor section will deal with the pertinent risks of the business. Included in the risk factors would be industry specific risks that could materially affect the business, as well as micro and macro risks toward the company, including competitors, and factors outside the control of the company such as natural disasters, recessions and so. Listing the company’s risk factors is important as omissions can come back to haunt entrepreneurs.
- Management Team: the management team section will showcase the team’s skills, including the CEO and the support staff, and possibly even the board of directors or an advisory board. It is wise to include the strengths of the management team as this can help build investor confidence.
- Use of Proceeds: the use of proceeds section is one page or more that details where the company plans on spending the capital they are raising. The use of proceeds is not always the most elaborate chart, but should be a solid breakdown of the plan of where the proceeds from the offering will be spent.
- Tax Implications: the tax section of the Offering Memorandum will detail the implications for an investor. Most OMs will not detail the specific state tax requirements so each investor would be required to speak with their local accountant. For international clients, non-US (or not from the country of one’s offering), the tax implication will be important for profit and loss and each country will have their own rules.
- Subscription Agreement: the subscription agreement is a synopsis of the terms of the entire Offering Memorandum and acts as the contract between the issuing company and the investor. The agreement will outline the terms of the offering, and the securities being sold, such as the bonds, notes, stocks, shares, warrants, or convertible securities.
- Exhibits: one of the final sections of the OM is the exhibits, which are ancillary data related to the business of the company or the securities being sold. Examples of exhibits that go into a Offering Memorandum may be an image of a patent granted, or licenses or a company’s incorporation certificate.
A Offering Memorandum is meant for an issuing company to be compliant with both state and federal laws, no matter where the OM is issued. A company selling securities wants to ensure they do not break any laws when approaching investors and are exempt for registration requirements. For an investor to make an educated decision the OM should contain all the noted data above, including financial projections and past financial performance and of course the risk factors of the business and industry. Risk factor information will not scare away experienced investors who are most likely well aware of such language being placed in an Offering Memorandum. The important thing is make sure your company is compliant with securities laws and regulations when raising capital.
What About a Business Plan?
While a business plan is not always included in the Offering Memorandum, many companies do create a section for some information related to the business. Others will create a full exhibit and put the entire business plan in that section, while others will just put an executive summary in the OM. The business plan is normally the first document a company would create when starting a business and most likely prior to raising capital. The business plan and the Offering Memorandum are in many ways two sides of the coin. The business plan details the company’s plan of action, the market, strategies to engage clients and more. The Offering Memorandum details what the investor will receive in return for their money, i.e. what kind of stocks or bonds, and what terms are attached to them and much more.
Here at Prospectus.com we are “traditionalist-specialists”. We believe that having a solid business plan is the key to creating a solid company and getting to the point where one can raise money by creating a Offering Memorandum.
If you company requires an Offering Memorandum or business plan, feel free to contact us anytime for a free consultation.
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Offering Memorandum for Mutual Fund