I'm working on the 'bones' of a PPM for a new venture, and have been using a template from RocketLawyer as a starting point. Trouble is, the template uses language that is more germane to an S or C corp than to an LLC. For example, it refers to shareholders, not members, and a few other minor structural differences. Other than having my attorney look this over for those types of fixes, is their anything fundamentally different in a PPM requirement for an LLC than there is for an S or C corp?
Private Placement Memorandum (PPM) for Manager Managed LLC
Answers
Governance structures are different and I would expect LLCs to vary the most among different states. There could be a lot of language differences regarding governance matters (observer rights or board seats in a Corp structure). Likewise, the mechanics of capital calls will be different.
LLCs are great, flexible entities that can be configured lots of ways. The problem is that you can rack up a lot of legal costs each time a new situation arises where either governance or equity plays a part (shadow stock, warrants, etc). Often, when fundraising using equity, it's better to find the source of investment first then build the vehicle. Converting entity types to enable equity investment is not unusual and can be done concurrent with and pursuant to equity investor interests.
It's too easy to spend heavily on what you think is an agreeable PPM, only to have to spend a similar amount to incorporate terms an investor will demand. If you really want to do a PPM first, you might consider switching entity types first to simplify the process.
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