Private Placement Memoranda: Pros and Cons of Using a Lawyer

There are numerous legal concerns in the creation of a private placement memorandum (PPM) and it is definitely recommended that a lawyer review the document at some point. However, there are both pros and cons to retaining a lawyer's services to draft the entire document in the first place.

Pro: Deep Legal Expertise

Assuming you have chosen a lawyer well (remember, not all lawyers are perfect) you will get correct advice on how to meet both federal and state regulations, while reducing your business's legal liability in a private placement offering.  The lawyer should be able to relate every aspect of the document to these needs, making sure that no misleading words or disclosures are made which can increase the chance of fraud claims down the road.

Con: Business Expertise

However, while the lawyer is busy crafting the PPM to protect your legal interests, they are not tending to the business requirements of the document. They will not be able to say how likely it will be for investors to believe in your business ideas and for you to raise the capital. They won't be able to comment with expertise on your business strategy and your techniques as a salesperson and presenter.

Con: Payment Up Front

Furthermore, lawyers will require payment for the PPM at the time it is created, well before capital has been raised. This payment can be anywhere from $50,000 to $200,000 or more and it can take six to twelve months to raise money from a private placement. The cash paid out for a lawyer to draft the PPM may be sorely missed during this time.

Con: Need for Separate Brokerage Services

To carefully and legally sell your shares to private investors and institutions, your company will have to raise funds itself or have to contract a licensed broker-dealer after the PPM is finished. By using a broker whose firm can write the PPM as well (with legal review) you can save a great deal of money and ensure that the document is written by a long-term partner whose financial success is tied to yours.