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Business Plan vs PPM vs Prospectus
Business Plan vs. Private Placement Memorandum vs. Prospectus
PPM.net is the world leader in drafting and writing business plans, private placement memorandums (PPM) and prospectus for both private and public offerings.
There are many documents that a company needs to raise capital (such as a real estate feasibility study). The most popular and utilized offering documents written during the funding process are 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?
Business Plans
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 problems or adds 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 pro forma statements.
Private Placement Memorandum
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 it’s 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 financials. A private placement memorandum is used in private placement offerings; 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 risks of the company;
- Subscription Agreement: the contract between the issuer and the buyer of the securities.
Prospectus
A prospectus is 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 mind to raise capital publicly). However, the prospectus is 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 list on a stock exchange. Key features of a prospectus include but are not limited to:
- Terms of the Offering: includes the amount of funding 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 terms;
- 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.
Conclusion
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 are required. The business plan shows one has done their due diligence and learned about the market. The private placement memorandum or prospectus is required for the regulatory aspect of your business and can provide legal protection for a company and fot one’s personal liability.
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Business Plan vs PPM vs Prospectus
Business Plan vs PPM vs Prospectus