Limited liability companies can raise capital through a private placement memorandum, or PPM. A PPM is an offer to sell bonds and membership units, also known as stock shares, through your LLC. It provides historical and financial information about your business and the types of securities you are selling. Under Securities and Exchange Commission regulations, you must disclose the risks investors may face by investing in your LLC. To limit your liability and protect your LLC from lawsuits, the PPM contains legal warnings that investors are purchasing your securities at their own risk.
The PPM provides a biography of your business and information about the LLC members and directors. It explains to investors why you started your business and its major accomplishments or milestones. The PPM identifies the primary sources of your business income and what goods or services you sell or plan to sell to your customers, and it tells investors if you sell completed goods directly to the public or if you manufacture components that are sold to other firms. The PPM explains the advantages you have over your competitors and your plans to offer new goods or services in the future.
Your LLC can sell bonds, membership units or warrants to investors. Because LLCs are not corporations, they issue membership units instead of stock shares. You must state the face amount, interest rate and maturity date for each bond issue. List the selling price for your preferred membership shares and common membership shares. If you issue preferred membership units, you must disclose the interest rate and any maturity date. If you issue warrants, you must state when your investors can exercise the warrant to purchase common membership units.
The business capitalization portion discloses how much money the PPM intends to raise and how the funds will be used for your LLC. The capitalization disclosure identifies each debt and equity issue separately along with the projected income for each one. You must provide a breakdown of what you plan to do with the proceeds. For example, you can list how much money will be placed in your cash accounts to fund daily operations, the amount earmarked for capital asset purchases and the funds used to retire your business debt.
The PPM includes a narrative of your LLC's past sales and profits broken down by year. It provides information about your actual sales and profits from one year to the next and explains the reasons for any changes. You also include a pro forma income statement and a pro forma cash flow statement; these statements are projections of your future income and cash flows, and they convince investors that your business is a good investment based on the future growth and revenue projections.
Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.