When a company decides to raise capital by selling securities, it must comply with federal securities laws and regulations. In doing so, the company will typically prepare two documents: a private placement memorandum (PPM) and a subscription agreement. While both documents serve important roles in the capital-raising process, they have distinct differences.

A PPM is a document that provides information to potential investors about the securities being offered. It typically includes details about the company, its management team, the terms of the securities being offered, and the risks associated with investing in the company. A PPM is not required by law, but it is essential in raising capital from accredited investors. It serves as a legal document that outlines the terms of the investment and helps protect the company from liability if an investor loses money.

On the other hand, a subscription agreement is a contract between the investor and the company, outlining the terms of the investment. It specifies how many securities the investor is buying, the purchase price, and the payment terms. The subscription agreement is a legally binding document that is signed by the investor and the company. It is a critical component of the capital-raising process as it ensures that the investor understands the terms of the investment and is committed to buying the securities.

One of the main differences between a PPM and a subscription agreement is their purpose. The PPM is intended to provide investors with information about the securities being offered, while the subscription agreement is intended to document the investor`s commitment to buy those securities. Another difference is that while the PPM is a legal document designed to protect the company, the subscription agreement is a legal document designed to protect both the company and the investor.

Both documents play a crucial role in the capital-raising process, and it is essential to ensure that they are drafted correctly. Companies seeking to raise capital should work with experienced attorneys and copy editors to prepare these documents. These professionals can ensure that the PPM and subscription agreement accurately reflect the terms of the investment and comply with all applicable securities laws and regulations.

In summary, a PPM and subscription agreement are two critical documents that work together to raise capital and protect both the investor and the company. While the PPM provides information to potential investors, the subscription agreement outlines the terms of the investment. Companies should work with professionals to ensure that both documents are accurately drafted and comply with applicable securities laws and regulations.