Private Placement Disclaimer

Written by Dave Lavinsky

A confidential private placement memorandum (PPM) is a document focused primarily on the potential downsides of an investment. The business plan, on the other hand, puts its focus on the vision of the entrepreneurs or business owners and the potential upsides of the business. To meet this requirement, the PPM must include numerous disclaimers. Some of the most important are disclosures made at the opening of the document and disclosures about the general and specific risks of the investment.

Opening Disclaimer

Immediately after the cover sheet and table of contents, an initial disclaimer must present the reader with the limitations of what the document that follows can and cannot be used for. For example, it should classify the document as confidential and not to be distributed or reproduced. It should disclose that the offering has not been registered with the SEC and details what exemption it meets from registration. It should remind readers that the contents of the PPM are valid only on the date of the document and that such information may change after that date. All of these types of disclaimers, which a lawyer should review for you, are created with the express purpose of protecting your firm from investigation by the SEC or claims of fraud or wrongdoing by investors and prospective investors.

General Risk Factors

Within the PPM, the risks associated with investments of this type must be repeated, no matter how obvious you believe them to be for sophisticated accredited investors. For example, you must explain that the value of the shares can drop or evaporate and the type of macroeconomic trends which could influence the success of the company. You should explain known risks to the industry of the firm to be clear that an industry’s health is not a sure thing in the long run.

Specific Risks

A section covering risks specific to this investment should list and describe what your specific company faces. For example, if the firm’s competitive advantage is built around intellectual property, there is a risk that the property could be stolen by another firm or better intellectual property be developed. If the firm’s advantage is partially built on the specific management team members, there is always the risk of one or more of them leaving the firm. Focus on what you see as the primary risks first and work your way down to the lesser risks.


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