Private Placement Legal Opinion
Buyers of private placements must purchase securities for investment purposes, not for resale. Typical subscription documents used in private placements contain what is known as “investment letter language.” This representation must be verified personally. It is necessary to consider whether the investment representation is logical in the light of the circumstances surrounding the interested buyer. Regulation D includes two SEC rules – Rules 504 and 506 – that issuers often rely on to sell securities in unregistered offerings. Most private placements are made in accordance with Rule 506. Is the legal opinion worth it? While cost-benefit analysis varies from company to company, there are a few basic principles to keep in mind. Our team will assist you in creating the PPM for all types of businesses and in all jurisdictions. This includes companies such as LLCs and limited partnerships, as well as corporations. And that includes drafting PPMs for offshore hedge funds and other offshore and onshore companies.
In addition, PPMs for special vehicles in Europe and Asia have their own PPM structures, in which we specialize. Our firm has drafted PPM private placement memorandum documents for issuers seeking to raise capital across all sectors including real estate, green technology, financial technology (fintech) and high tech, social media companies, space and underwater exploration, mining, food operations, consumer goods, hospitality (hotels, restaurants and resorts), crowdfunding and more. Under federal securities laws, a company cannot offer or sell securities unless the offer has been registered with the SEC or there is an exemption from registration. Offers that are exempt from the SEC`s registration requirements under Section 4(a)(2) of the Securities Act or its safe harbor under Regulation D of the Securities Act are often referred to as private placements. A management consultant`s opinion is intended to provide investors with additional comfort with respect to the legal issues covered by the opinion, but does not replace the “due diligence” that must be performed by investors and their legal counsel. The opportunity to invest in a private placement can come from your investment professional. Your investment professional can help you better understand opportunities and risks, as well as investigate and gather additional information, but it`s about your money, your risk and your decision to invest or not. You should also inquire about the compensation your Investment Advisor receives for the transaction and any relationships, business relationships or other conflicts of interest that may prompt your Investment Advisor to recommend the investment, whether in your best interest or not. Private placements can be offered as a unique opportunity to only a handful of investors, including you. Be careful.
Don`t be fooled by this high-pressure sales tactic. Even if the deal is “unique,” it may not be a good investment. It`s important that you get all the information you need to make an informed investment decision. Issuers invoking the 506(b) exemption must give non-qualified investors an opportunity to ask questions and obtain answers to the investment. If an issuer doesn`t adequately answer your questions, consider it a cautionary tale against investing. Most sophisticated law firms have a detailed backup search and internal approval process for the preparation of legal opinions, which will increase the transaction costs of the business. Businesses may not want to incur costs for legal advice, otherwise these funds could be used for business growth. In general, the smaller the amount raised through funding, the less likely it is that an opinion will be appropriate. There are two main things to consider before buying restricted securities.
The first is that unless you have entered into agreements with the issuer to resell your restricted securities in a registered offering, you must comply with an exemption from the resale registration requirement. A rule that investors often rely on to resell restricted securities requires you to hold the restricted securities for at least one year if the company does not file periodic reports (such as annual and quarterly reports) with the SEC, and six months if the company files periodic reports with the SEC. Most private companies that make private placements do not submit these regular reports. You may want to hire a lawyer to help you meet the legal requirements for reselling restricted securities. Issuers may seek legal advice that you comply with an exemption to resell your restricted securities. The specific requirements for establishing a section 4(2) exemption for a private placement are not set out in this section of the Securities Act 1933. By studying the SEC`s interpretations and court decisions on section 4(2), the essential requirements that a private placement must meet can be determined. They are summarized below: You can identify Private Placements based on Regulation D by the prominent legends that must be affixed to all offering documents and to certificates or other instruments representing the securities.
The legends must indicate that the offer has not been registered with the SEC and that the securities have restrictions on their transfer. Think of this as a red flag when documents related to a private placement lack these required captions. Issuers may provide a document called a private placement memorandum or offering memorandum that outlines the investment and discloses information about the offering of securities and the issuer. This document is not required. However, if the issuer does not provide information about itself and the offering of securities, whether through this type of document or otherwise, this may be a red flag to consider before investing. In addition, private placement notes and other offering documents are generally not reviewed by any regulatory body and may not present the investment and related risks in a balanced light. No to any question. Legal advice is not provided in all U.S. venture capital financings, and they are much rarer in large non-U.S. venture capital jurisdictions. Even in the transactions where they are given, the content is negotiated between the investor advisor and the company advisor and varies somewhat from transaction to transaction. Whether or not an opinion is issued and whether the content of the opinion takes into account the specificities of the company, the transaction and sometimes the investor.
Although private placements are not subject to the same disclosure requirements as registered investments, they are subject to the anti-fraud provisions of federal securities laws. The information provided must not contain material misrepresentations or omit material facts necessary to prevent the statements made from being misleading. You should be aware that it can be difficult, if not impossible, to recover the money you invest in an offer that turns out to be fraudulent. Although the offer may be exempt from SEC registration, the offering may be separately required to comply with state securities laws, including state registration requirements or a state registration exemption. This overview of the private placement procedure is not legal advice and is provided for informational and educational purposes only. If you are considering a private placement or legal transaction, you should consult a lawyer who can give you the advice you need for your specific situation. Securities law and corporate finance are not the domain for beginners. Faulty documentation can have serious consequences for everyone involved.
Our team of securities lawyers prepares opinions for private placement notes. Op-eds are important because they can remove some of the directors` liability and impose it on the lawyer. Prospectus.com is one of the world`s leading providers of private placement memoranda for settlements D, S and 144A or Reg S Law and everything in between, including all public listings and public offerings. From New York to London to Singapore to Dubai, nowhere is there a firm that has been involved in more private placement documents than Prospectus.com. A private placement memorandum (also known as a PPM) is a capital raising document. The memorandum contains details of the securities offered to investors, as well as key information about the company such as market opportunities, risk factors, management team and subscription agreement documents.
