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PPM Sample

* To see a full sample of our PPM’s choose any PPM in our library and click the orange icon next to the picture of the PPM, then scroll through each page using the arrows to the left and right. You can review each page.

Using a PPM Sample/Template document is a great way to setup the framework for a capital raise. There’s a lot of information needed to compile the proper data, and having a roadmap can be extremely useful. The general layout is pretty straight-forward. The SEC lays out the minimum disclosures. However, not all PPM Templates have the proper framework.

It’s important to understand the background of the person (or people) who designed the template. Are they experienced in the legal aspects of compiling the data? Did they write the templates, or did they buy them and now they’re reselling them? If you’re looking for the best quality, and templates that have been prepped with great sample data, then you’ve come to the right place. Our staff has extensive experience and formal education in legal writing skills. Whether you’re a professional attorney, paralegal, or a DIY entrepreneur, our PPM Templates have excellent sample data and it’s laid out in a very user-friendly manner.  

Check out who’s raising capital throughout the United States: Click Here

Note: PPM Docs™ offers professionally prepared private placement document templates with example data, and you can review every page in the memorandum, including the subscription package, by clicking the pictures provided in the shopping cart. They are available for immediate download following your purchase.


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Regulation D

Regulation D is a SEC regulation created under the Securities Act of 1933, indoctrinated in 1982. It allows companies the ability to raise capital by selling equity or debt securities. This allows small businesses to raise capital from private investors, while avoiding the hefty financial costs of registering the securities with the SEC. This is called an ‘exemption from registration.’

Regulation D Rules

There are 3 basic rules used to get the exemption. These rules allow for different amounts of capital, different types of investors, and different methods for conducting an offering. Before determining which of these rules to use you will need to read each rule and figure out which rule works best for your offering.

  • Rule 504 – Old rule, for raising up to $1M. Not recognized by some states.
  • Rule 506(b) – Old Rule, unlimited capital amount. Recognized by ALL states.
  • Rule 506(c) – The NEW General Solicitation Rule! Recognized by ALL states.

Types of Offerings

The 2 basic types of Regulation D Offerings are:

An “equity” offering – whereby the company sells partial ownership in the company via a security (e.g., stock shares or LLC membership units) to raise capital. Equity offerings are preferred by early stage companies because there is no structured repayment schedule or debt payments. The investors usually receive a return when the company starts to generate profits.

A “debt” offering – whereby the company raises debt financing by selling a promissory note to investors with a set annual rate of return, and a maturity date for when funds will be paid back to investors. A debt offering is much like a business loan, but instead of a bank providing the financing, a group of investors lends funds to the company.

* These offering types can be combined, e.g., debt that converts into equity at some point in the future.

Seven steps to preparing an offering:

  1. A Great Business Idea.
  2. A Great Business Plan: A full copy of the business plan should be included in the PPM.
  3. Investment Layout & Disclosure Documents: Most entrepreneurs are not experts at raising capital, thus typically have poorly structured investments. An improper investment structure will portray an unprofessional image to potential investors. The first step in an offering is properly developing the structure. Structuring usually includes, setting stock price or note amounts, determining how much of the company to sell (in equity transactions), which Reg D program to use, setting the maturity date and rate of return for promissory notes (in debt situations), share allocations to principals (so they maintain a set amount of control in the company), minimum and maximum offering amounts which set the effective range of the offering, minimum amount of investment per investor, etc.
  4. Document Creation: Preparing an offering involves the creation of the Regulation D Offering documents. These documents include:
    1. Private Placement Memorandum: The Private Placement Memorandum, or “PPM”, is the document that discloses all required information to the investors about the company, proposed operations, the transaction structure (whether you are selling equity ownership or raising debt financing from the investors), the terms of the investment (share price, note amounts, maturity dates, etc.), risks involved, etc. Note: This document typically contains much of the information found in a business plan and also includes an extensive “return on investment” structure, along with an investment contract or “Subscription Agreement” (see next bullet point).
    2. Investor Suitability Questionnaire: This questionnaire must be completed by each investor and attached to the Subscription Agreement. This document qualifies the investor as an Accredited Investor.
    3. Subscription Agreement: The Subscription Agreement explains the terms and conditions of the offering. It is the “investment contract” for purchasing the securities. Typically an investor will complete this document and then attach a check for the investment.
    4. Promissory Note: In debt offerings you need to have a Promissory Note outlining the terms of the loan arrangement with the investors. The note is the actual “loan document” between the company and the investor.
  5. Form D SEC Filing: The Form D is the form filing that is sent to the SEC in Washington, DC. It notifies the SEC that you are using the Regulation D program and provides them basic information on the company and the offering. Note: It is not an approval document or registration, rather it is a filing that notifies the SEC that you have a Regulation D Offering in place.
  6. State Form D Filing: Also called “Blue Sky” Filings, most states require a specific form to be filed along with a copy of the SEC Form D and some require a copy of the PPM. Nearly all states charge a fee ranging from $50 to $1,500. In most states the form does not need to be filed until capital has been received from an investor in that state. After receiving the capital you typically have 15 days to file the appropriate documentation, with a few exceptions like New York, who requires filing prior to raising capital; and
  7. Marketing and Capital Acceptance: The offering is now ready for marketing to investors. The JOBS Act of 2012 has reversed a 80 year old rule whereby solicitation or advertising to accredited investors was strictly prohibited. Investors can now advertise their offerings to accredited investors provided they file Form D and notify the SEC that they intend to use general solicitation.

The Regulation D Programs can be used by domestic as well as foreign corporations. While the programs can be used by any corporation type – the preferred structure is a “C” Corporation or Limited Liability Corporation “LLC“.

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Filing Form D

To use Regulation D the SEC requires all small business owners, selling securities in a Regulation D Offering, to file a “FORM D.” To simplify the filing process the SEC requires that issuers file all forms using the EDGAR Filing System. As with most government systems Edgar can be quite complex, so we’ve provided the following:

Does the SEC charge a fee?
No, there is no fee. However, again, it is time consuming.

How long does it take?
It typically takes a few days, but sometimes it gets completed within a few hours. It depends on how busy they are at the SEC. Although the filing gets uploaded via the Internet, an account must be set up at the SEC before the Form D can be filed. The SEC approves each account by hand, which typically takes 1-2 business days. After the account is set up the Form D can be filed fairly quickly.

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Disclosing Dilution

Along with specific risk factors, disclosing ‘dilution’ is one of the most important sections of a private placement memorandum. It’s one of the first sections investors review when perusing a PPM. Look at this way, if you were investing your money, wouldn’t you want to know whether your equity in the company was going to remain at a certain percentage to secure your investment? Of course you would. Assuming a company only needs 1-2 rounds of capital to get started, it can work out great for initial investors. However, if the company runs out of capital they may need to sell more shares. This can ‘dilute’ the prior investor’s ownership percentages.

Here’s how disclosing dilution works:

1. Let’s say you start the company with 30,000,000 shares authorized for use.

2. You issue 10,000,000 of those shares to founders at .001 per share (par value) or $10,000. These shares are classified as ‘Common Shares.’

Note: This scenario can get even more complex if the entrepreneur issues ‘preferred shares’ and allows them to become convertible into common shares, e.g., 5 common shares for every 1 preferred share. Voting rights can also become an issue here. But for our scenario let’s keep it simple.

3. Your current ‘book value’ is $.001

($10,000 ÷ 10,000,000 shares = $0.001 per share)

4. You then reach into your Authorized Share pool and offer 4,000,000 common shares to new investors in a Reg D Rule 506(c) Private Placement at an assumed value of $1.00 per share, based on projections, patents, trademarks, intellectual property, etc. You raise $4,000,000.

5. After this first capital raise you will have issued 14,000,000 shares which now defines the percentages of ownership at 71% (founders) and 29% (new investors).

Note: Ownership percentages are figured by ‘Issued Shares’ NOT Authorized Shares.

6. After the offering is sold and closed, this leaves you with 16,000,000 shares for further issuance later (from the pool of Authorized Shares).

7. With the cash infusion of $4,000,000 your new book value is $0.29 per share.

($10,000 + $4,000,000 = $4,010,000 ÷ 14,000,000 shares = $0.29 per share)

8. This leaves the ‘dilution per share’ to first round investors, at $0.71 per share.

($1.00 – 0.29 = $0.71) or (Stock Price – Book Value = Diluted Value)

9. After receiving investment capital from first round investors, and closing the offering, you immediately start raising more capital using a different Reg D Rule, e.g., Rule 506(c) for the first offering and Rule 506(b) for the second offering.

10. Let’s say you sell and issue 2,000,000 more shares from the pool of Authorized Shares at $2.00 per share, raising an additional $4,000,000.

11. After the sale and close of this second offering your new capitalization total is $8,010,000.

($10,000 + $4,000,000 + $4,000,000 = $8,010,000)

Note: This is all assuming you don’t have expenses to deduct from the capitalization total. If you have expenses those would be deducted from the total when figuring the book value. This is only for the sake of our scenario.

12. This brings your new book value to $.50 per share.

($8,010,000 ÷ 16,000,000 shares = $0.50 per share)

13. Second round investors experience an immediate dilution of $1.50 per share.

($2.00 – $.050 = $1.50) or (Stock Price – Book Value = Diluted Value)

14. Now the ownership percentages change to 62% (founders), 25% (first round investors) and 12.5% (second round investors). Founders lose 9% and first round investors lose 4% of their equity ownership.

15. The company still has 14,000,000 shares to issue from its Authorized Share pool.

(30,000,000 – 10,000,000 – 4,000,000 – 2,000,000 = 14,000,000)

Here’s our dilution formula:

Stock Price – Book Value = Diluted Value; and

Diluted Value ÷ Stock Price = Dilution Rate

* Please consult with an attorney if you’re unsure about the above information.

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Accredited Investor Definition

Under the Securities Act of 1933, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The Act provides companies with a number of exemptions. For some of the exemptions, such as Rule 506 of Regulation D, a company may sell its securities to what are known as “accredited investors.”

The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:

  • a bank, savings and loan association, insurance company, registered investment company, business development company, or small business investment company or rural business investment company
  • an SEC-registered broker-dealer, SEC- or state-registered investment adviser, or exempt reporting adviser
  • a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5 million
  • an employee benefit plan (within the meaning of the Employee Retirement Income Security Act) if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million
  • a tax exempt charitable organization, corporation, limited liability corporation, or partnership with assets in excess of $5 million
  • a director, executive officer, or general partner of the company selling the securities, or any director, executive officer, or general partner of a general partner of that company
  • an enterprise in which all the equity owners are accredited investors
  • an individual with a net worth or joint net worth with a spouse or spousal equivalent of at least $1 million, not including the value of his or her primary residence
  • an individual with income exceeding $200,000 in each of the two most recent calendar years or joint income with a spouse or spousal equivalent exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year or
  • a trust with assets exceeding $5 million, not formed only to acquire the securities offered, and whose purchases are directed by a person who meets the legal standard of having sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment
  • an entity of a type not otherwise qualifying as accredited that own investments in excess of $5 million
    an individual holding in good standing any of the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82)
  • a knowledgeable employee, as defined in rule 3c-5(a)(4) under the Investment Company Act, of the issuer of securities where that issuer is a 3(c)(1) or 3(c)(7) private fund or
  • a family office and its family clients if the family office has assets under management in excess of $5 million and whose prospective investments are directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment

* See the SEC’s Official Definition.

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Tesla used Regulation D

In a series of eleven Regulation D Rule 506(b) private placements, ranging from 2005 to 2009, Tesla Motors, including Elon Musk and crew, raised over $300M before going public.

Here’s the publicly available information on the SEC’s website:

  1. 506 Offering for $3.1M
  2. 506 Offering for $136M
  3. 506 Offering for $89M
  4. 506 Offering for $5.2M
  5. 506 Offering for $11.9M
  6. 506 Offering for $— 
  7. 506 Offering for $11.9M
  8. 506 Offering for $18.5M
  9. 506 Offering for $44.9M
  10. 506 Offering for $40M
  11. 506 Offering for $40M

* Tesla made amendments to some of the above offerings, and as such, this list may or may not be incomplete and/or out of order. However, the purpose of our blog post is to demonstrate how Regulation D is used.

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Reg D for Real Estate

Since one of the choices on a Form D is “Tenants in Common” it’s obvious that real estate can be considered a security. That aside, most real estate investors use part cash and part financing on projects.

Regulation D has long been used by savvy real estate developers who take private investments from local private investors. With particularity, Reg D Rule 506(c), the newest addition to Reg D via the Jobs Act, opens up a whole new window of opportunity.

Any amount of money can be raised using this rule: $25,000 to $25B+. The amount is unlimited. An offering can be structured the same way any other offering is structured. Debt (private loan), equity (selling shares of your company, or equity in the property), or a combination of debt and equity.

Most of these entities are set up as Limited Liability Companies for tax purposes, and sell Units (or shares) of Membership.

The offering is prepared and filed like any other Reg D Offering as follows:

  1. Construct the PPM
  2. File the Form D
  3. Collect investments
  4. File the state forms
  5. Close the offering
  6. Use the investment capital
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When to file a Form D

Technically, companies raising capital in reliance on Regulation D have up to 15 days following the first receipt of capital to file their Form D with the SEC.

However, if you read the SEC’s website closely you’ll notice that they warn investors about investing in companies who have not filed their Form D. They recommend to investors that they check to make sure the company soliciting an investment has at least filed their Form D.

Obviously, if you wait to file until after you receive capital you wouldn’t show up in the Edgar database, and this may be a deal breaker for certain investors. Especially if you’re taking advantage of the new 506(c) general solicitation, contacting investors you don’t necessarily know.

If there’s one thing we’re all sure of, it’s that investors are conducting a lot more due diligence these days. So, our recommendation, and it seems the SEC’s recommendation, is to file your Form D before contacting investors.

It’s FREE. The SEC does not charge to file a Form D.

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What is Rule 506?

Rule 506 of Regulation D is a rule that pertains to private capital raising and using an exemption from having to register the offering with the SEC and state regulators. Rule 506 has two parts that are frequently used to use the exemption. Those rules are 506(b) and 506(c).

What is Rule 506(b)?

Rule 506(b) is the ‘old rule’ still used by most companies who are raising capital. It stipulates that sellers (issuers of stocks or units) cannot advertise or solicit their offering to ‘any’ investor(s). Rule 506(b) allows sellers to raise any amount of capital, from $1 to billions of dollars. This rule also allows issuers to sell to 35 unaccredited investors who are at least sophisticated in their knowledge of investing and financial condition. Most sellers use this rule.

What is Rule 506(c)?

Rule 506(c) has all the same stipulations as 506(b) above, however, this rule allows general advertising, provided the solicitations are targeted solely at accredited investors; moreover, if general advertising is used it disqualifies the seller from taking ‘any’ unaccredited investor capital.