When acquiring or starting a restaurant, financing is perhaps the most difficult obstacle to overcome. One popular option is to raise money from investors. Such private financing may be undertaken through a private placement memorandum or a “PPM”.
The PPM utilizes an exemption under Regulation D of the Securities Act of 1933 (Rules 504, 505 and 506, 117 CFR 230.501) that allows business owners to sell shares of their company to private investors without having to register the shares with the U.S. Securities and Exchange Commission. Regulation D describes how the securities registration exemptions apply based upon the size and scope of the business owner’s financing need.
The PPM should include a description of the restaurant project; the basic terms of the stock sale; projected return to investors; business plan; and disclosures required under applicable securities laws. Investor disclosure requirements may differ from state to state, depending on the state of residence of the investor.
Tracking each distributed copy of the PPM, including name and residential address of each recipient, is critical. To assure compliance with applicable law, a restaurant owner should retain knowledgeable professionals to draft the PPM and provide guidance throughout the financing process.