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Private placement memorandums

Private placement memorandums for the sale of stock

A Private Placement Memorandum is a document written up for the purpose of disclosing certain company information.In the case of a Private Placement Memorandum for the sale of stock, information is given regarding the pros and cons of investing with that particular company.This Private Placement Memorandum is for the benefit of potential investors.Although a Private Placement Memorandum is not required for the sale of stock (especially for smaller stock offerings) it is a good way to be upfront and open about the company.This is helpful if there are any future falsifications or failure to disclose complaints by unhappy investors. Investors are have no rights to refunded money if they were aware of and agreed to all risks upfront.

There are some important topics to keep in mind when you write your own private placement memorandum for the sale of stock.As was stated before, your whole purpose in creating this private placement memorandum is to present all information truthfully.Here are some other helpful tips to keep in mind:

  1. Do not make up information to make your company sound better than it actually is.
  2. Don't mislead investors by padding the negative or fictionalizing the positive.Investors want accurate and exact numbers.Don't use flowery words or misleading charts to trick your investors.Believe that what goes around comes around and everything falsified will eventually make itself known.
  3. Omitting information is not better than being un-truthful.
  4. Be honest about the risks, put all of your weaknesses out on the table.Remember, even though they may be your weaknesses now, smart investors know that no company is perfect and that it takes a little risk in the beginning to get a bigger return in the end.
  5. Have proof that your statements are accurate.Back your information up with hard evidence.Know the actual numbers that your company is operating with.
  6. Don't Lie, Don't Lie, Don't Lie.Just like your mother always told you.When you lie about your companies status to your potential investors, your consequences is going to be much harder than a slap on the wrist.If things are really so bad that you have to lie to get any kind of investor interest, selling stock is not a good idea.

Not following these tips can lead to all kinds of disastrous consequences.If investors are misled they can demand a refund on their investments.Not only will this make you no better off than you were before you ever even offered stock but it will hurt your company's reputation, cost additional money for any legal ramifications, and waste valuable time.The honest way is always the best way.To make sure that you are disclosing all that is required you may want to consult with a securities lawyer.He can help you cover your tracks and avoid serious legal ramifications.

Now you should hopefully have a clear idea of just how important it is to be truthful in disclosing all applicable information, especially risks when preparing a Private Placement Memorandum for the sale of stock.But what specifically should be included in the Private Placement Memorandum.Here is a list that you should address (this list is not all inclusive, you should consult with your securities lawyer to make sure that you include all necessary information in your Private Placement Memorandum):

Securities Offering SummaryInvestor Suitability Standards
Risk FactorsDilution
Plan of Distribution (of Securities) Capitalization
Use of Proceeds Tax Information
Applicable TransactionsDescription of Capital Stock
Analysis of the Companies Financial Condition
Principle ShareholdersTerms of Offered Securities

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