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Important Considerations When Investing in Private Placement Offerings

Published July 29, 2010

Some people consider an investment in a Private Placement Offering (PPO) to be speculative and highly risky. While there is a certain amount of risk to investing in PPOs, there are regulations in place that are meant to protect those investors who choose to participate in these offerings. Generally, investors must meet the qualifications of accredited status in order to participate in a PPO. Investors must be capable of enduring the loss of their total investment and must not require the invested funds for living expenses, retirement, or other purposes.

Before investing in a PPO, a potential investor should consider the following questions:

  • How well do you know the company or entrepreneur offering the investment?
  • How much do you stand to lose or gain with the investment?
  • How does the law protect you and does the investment comply with all applicable regulations?
  • What type of investment is it? Debt or equity?
  • Can the impact of taxes be minimized?
  • Can you protect yourself by establishing an entity with which to do business ?
  • What are the rights and obligations of investors?
  • How does the company plan to use the proceeds of the PPO?
  • What is the subscription procedure for the investor?
  • Are there  conflicts of interest involved with the investment?

Most PPOs are accompanied by a Private Placement Memorandum (PPM). This document is intended to provide investors with detailed information about the investment so that investors can make informed decisions.

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