Is it necessary to hire a lawyer to draft a PPM?

searcher profile

November 20, 2023

by a searcher from New Jersey Institute of Technology in New Jersey, USA

Hello everyone, I have a question. i am in early phases without financial backing, is it necessary for me to hire a lawyer to assist in drafting a Private Placement Memorandum (PPM)? I've already prepared a draft of the PPM and would greatly appreciate it if someone could review it and provide feedback

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commentor profile
Reply by a professional
from William Mitchell College of Law in Minneapolis, MN, USA
As a ETA/Searchfunder lawyer and a securities lawyer (what you are doing is a securities offering), I say yes. The Private Placement Memorandum is designed to not only provide information about your business plan and search, its primary legal use is to provide disclosures and information to protect you if investors lose money. For example, risk factors are things all searchers and founders hate, but they are the number 1 best thing to defend yourself if something goes wrong. But risk factors have to be specific to the company and issue for them to be effective. And most searchers and founders have a hard time turning a critical eye to their business plan. Most also add language like “but we dont think any of that negative stuff will happen, just ignore it and look at our nice hockey stick projection…” A lawyer should be able to help you create good risk factors and disclosures (and the rest of the PPM) to accomplish both the sales effort and risk mitigation. Plus, you may also need to file a Form D with the SEC and make blue sky filings. Good luck!
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Reply by a professional
from University of Michigan in Detroit, MI, USA
Happy to weigh in as a lawyer: No, strictly speaking, it is not necessary. Is it wise? probably. Look, I get it: Lawyers cost money. Sometimes, a lot of money. But searchers are looking to buy companies, not dollar widgets. So spending money comes with the territory. The trick is to find the right lawyer. One who understands your goals and resources, and is right sized to offer the services you need for your budget (or, alternatively, honest enough to say he cannot service your needs at your budget). At the same time, make sure your lawyer has a great background. The bar for entry into the legal profession is low. Don't scrape the bottom of that barrel. Look for quality credentials and experience. And if you're looking to do a number of deals, think long-term: Who is the right lawyer to work with you over several deals, not one. You'll end up saving money and the lawyer will be able to keep costs down better by thinking more in terms of program, rather than project management. Of course, this applies to having a PPM reviewed as much as any part of the acquisition process. A lawyer should probably be on your team somewhere.
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