Offering Memorandum

Offering Memorandum

What it is

An offering memorandum—also called a private placement memorandum (PPM)—is a legal disclosure document used to market a private securities offering. It describes the investment’s objectives, terms, risks, and material facts about the issuer to help prospective investors evaluate the opportunity.

Key takeaways

• Used for private placements rather than public offerings.
• Presents detailed business information (financials, operations, management) and risk disclosures.
• Typically prepared by the issuer with help from investment bankers and legal counsel.
• Targeted at a limited group of prospective or “sophisticated” investors, often accredited investors.
• Usually includes a subscription agreement that becomes the binding contract between issuer and investor.

How it works

1. Issuer defines financing needs (amount to raise, price, securities offered).
2. Investment banker, law firm, or issuer drafts the PPM to satisfy securities disclosure requirements and communicate the opportunity to select investors.
3. The PPM is distributed to a limited, preselected group rather than the general public.
4. Interested investors perform due diligence and submit subscriptions; the subscription agreement documents the sale.
5. The issuer closes the offering with investors who meet qualification requirements and agree to the terms.

The PPM acts both as a marketing document and a formal disclosure to reduce issuer liability for omitted or misleading information. It does not mean the securities are registered for public resale; private placements are often subject to resale restrictions and limited liquidity.

Typical contents

• Executive summary and offering terms (price, minimums, closing conditions)
• Business description and strategy
• Financial statements and projections
• Use of proceeds
• Risk factors and material risks
• Management and key personnel biographies
• Capitalization table and ownership structure
• Subscription agreement and investor qualification requirements
• Legal, tax and regulatory disclosures
• Exit or liquidity strategy

Example (illustrative)

A manufacturing company needs $1 million to expand. It decides to sell private equity at $30 per share and engages an investment banker to prepare a PPM. The banker circulates the PPM to a select list of qualified investors. Those investors review the company’s financials, assess risks, and if satisfied, sign the subscription agreement and invest. The company raises capital without a public offering or taking on public-company obligations.

Offering memorandum vs. prospectus (and summary prospectus)

• Prospectus: a disclosure document for public offerings (e.g., IPOs) and registered securities, distributed broadly to potential public investors.
• Offering memorandum (PPM): used for private, unregistered offerings that target a limited group of investors; often accompanied by resale restrictions.
• Summary prospectus: an abridged version of a mutual fund’s final prospectus that highlights key information for quick review; not the same as a PPM and used in public mutual fund distributions.

Investor considerations

• PPMs are intended for sophisticated or accredited investors who are expected to perform thorough due diligence.
• Private placements often carry greater illiquidity and concentration risk compared with public securities.
• Investors should review financials, risk factors, transfer restrictions, and the subscription agreement—and consider legal and tax advice before investing.

Bottom line

An offering memorandum provides comprehensive disclosure for private securities offerings, balancing investor information needs and issuer legal protection. It is a core document in private financings and an essential tool for investors evaluating private equity or debt opportunities.