After a business plan is written, it will help guide management and measure progress. Federal and state law make it illegal to sell securities by using misleading or inaccurate information. Thus, an entrepreneur should include all material information in the business plan about the company, its management and the risks in investing. The business plan should disclose all the assumptions upon which the projections are based, and include only projections management has a reasonable basis for having. A private placement memorandum is both a promotional and disclosure document, as it discloses the benefits and risks of the investment.
Federal laws have some exemptions from registration.
State laws vary in terms of the form in which the disclosure must be made, and items required to be disclosed. An entrepreneur should consult an attorney before drafting and releasing a private-placement memorandum. Many situations such a memorandum. However, an entrepreneur should in any event disclose all material information to all prospective investors. Antifraud provisions of state and federal securities laws will make an issuer of securities liable should it make a misleading statement, or fail to disclose material facts in connection with a sale of securities, regardless of whether it was required to file a private-placement memorandum.