Offering Memorandum

What is an Offering Memorandum?

Investors get an opportunity to review the financial position of the company issuing the new securities, the biographies, and the details of the operations before they make the investment. This legal document makes it easier for investors to decide if the shares they are buying are suitable. The Offering memorandum specifies the goals, risks, and other conditions of the investments. It is compulsory for all issuing companies to draft the offering memorandum before issuing new securities.

Not only does it provide the buyers with adequate information about the company’s financial position and overall performance, but it protects the sellers as well. Without the offering memorandum, anyone can file a case against the company for issuing unregistered securities. Note that an office memorandum is only issued by the companies for private placements. This is designed to attract institutional investors. For the buyers, the offering memorandum acts as the way to gather information about the issuing company, the purpose of raising Capital through public offerings, and the risks associated with the investments. The document lists everything a buyer needs to know before they purchase the shares.

Difference between Prospectus and Offering Memorandum

The offering memorandum is composed by the investment banker for the company owner. This private placement memorandum is mainly used to run the auction among institutional and individual investors. It is a legal requirement for all the private companies that plan on raising funds from individual investors. The experienced investors go over the offering memorandum to learn more about the details of the new issue. While offering memorandum has a similar structure to the prospectus, the only difference between the two is that prospectuses are drafted for the shares issued to the public. Offering memorandum, on the other hand, is strictly for private placements.

Understanding Offering Memorandum

At times, private companies plan to expand their organization without applying for a loan or issuing shares to the general public. For instance, a Manufacturing company that decides to buy new machinery to expand its operations and production level could issue an offering memorandum to fund the expenses. The company is supposed to decide the total number of shares the company plans on issuing and what will be the price per share.

The manufacturing company has to work closely with the investment banker to create the offering memorandum. They have to ensure that the memorandum fulfills all the basic requirements implemented by the Securities and Exchange Commission. Once they have drafted the offering memorandum, the company can send the copies to the investment parties that must be interested in buying the shares. Usually, the companies sell these securities to large investors. Unlike the public offering, the office memorandum is for selected investors only. It isn’t available to the public.

This document contains information about the risks of investment, the company’s details, day-to-day operations, and more. The offering memorandum is used with the subscription agreement that works as the legal agreement between the organization issuing the securities and the investor.