You’ve decided to invest in a short-term private debt Security. Or, perhaps, a private equity investment. Great! Now what?

Let’s review what you can expect in the way of Closing Documents, such as the Private Placement Memorandum.

Closing Documents include agreements between the Issuer and the Investor in which the parties commit to participate in the offering and state the specific terms of the investment relationship.  The Investor and/or the Issuer execute these documents as appropriate to the nature of each agreement (see an explanation below for each type of Security). 

Closing documents can include the following documents. When considering an investment, please read them thoroughly and execute those requiring your signature.  A complete executed set will be provided for your records.  Note: each Broker-Dealer may have slightly different processes and requirements.  What follows is CFG’s process, but it is likely to be like most others. 

For an Equity Investment:

• Private Placement Memorandum (“PPM”)– When used, the PPM is the definitive document for the offering to describe the terms of the offering and relevant background of the Issuer. It is produced by the Issuer and is for informational purposes. No signature required.
• Joinder to the Operating Agreement – It notes the Investor’s agreement to the Operating Agreement.  The Investor signs.
•  Articles of Incorporation (for C Corporations) or Operating Agreement (for Limited Liability Companies) – These agreements establish the framework for a business’s corporate governance and include the Issuer’s obligations to the Investors relating to the equity Security.  If equity Warrants are issued in conjunction with debt, the Warrants will be identified within this fundamental document.
  These agreements also specify the Distribution of equity ownership (including options to acquire equity) that will be in effect after the new equity Securities have been issued.  The Issuer executes it directly. The Investors may either execute directly as well or they may indicate participation through a Joinder Agreement.  
• Subscription Agreement (or Purchase Agreement) – Here Investors commit to make the investments and identify how much they will invest.  Investors make representations regarding their competence and ability to make the investment decision.  The Issuer makes representations that the Securities which have been authorized for issuance.  The Investor and the Issuer each sign it. 
•  Investor Questionnaire – A document wherein the Investor certifies that he or she meets the Accredited Investor standards required for investing in a Rule 506(b) offering.  Investors also certify that they have reviewed all the closing documents included for the offering.  Executed by the Investor alone.
• Sensitive Information Release – Completed by the Investor, where applicable, to give the Broker-Dealer permission to obtain the W-9 and Direct Deposit Authorization that is kept on file to enable the Issuer to prepare tax filings and make distributions directly to Investors.  Required to satisfy the USA Patriot Act and Know Your Customer Rules (“KYC”).   Executed by the Investor alone.

For a Debt Investment: 

• Private Placement Memorandum (PPM ) – Same as above.
• Loan and Security Agreement (LSA) – The LSA, if used, specifies the overall loan governance structure and includes borrowing covenants committed to by the Company issuing the debt Security.  Both the Issuer and the Investor sign it.  If the offering is unsecured, the document will simply be a Loan Agreement.
• Promissory Note – This is the definitive evidence of the terms for the indebtedness of the Issuer to the Investor, including interest due, the principal repayment timeframe, default events, penalty rates and related remedies.  The Issuer signs it. 
  
•  Subscription Agreement – See above.
•  Lender Questionnaire – See Investor Questionnaire above.
• Sensitive Information Release – See above.

In all cases, either the Issuer or the Broker-Dealer returns executed documents to each Investor for his or her records.

New Investor Documents: 

Before making an investment, a new Investor dealer will:  

• If through a broker dealer, complete a Customer Record Form providing contact information, accreditation information, investment experience (particularly for alternative investments), risk tolerance and current portfolio distribution;
• Sign a release (in CFG’s case), allowing a background check to be performed;
• Provide a W-9, which will provide the TIN or SSN necessary for the investment tax filing;
• Execute an optional Direct Deposit Authorization for payments by wire or ACH; and
• Forward a photo id.  

Executing Documents:

Issuers (often through their attorneys) may deliver paper copies of these documents for your execution.  At CFG, because we have verified the backgrounds of all parties, we manage the closing process using digital communication with electronic signatures. 

• CFG sends the Investor an e-mail with all the documents to review; providing an e-signature link for execution of the documents by the Investor;
• CFG then obtains Issuer’s counter signatures on all documents,
• Once all signatures are received from both the Investor and Issuer, CFG forwards to the Investor fund transfer instructions (typically by a bank wire) for the Issuer’s bank account;
• CFG alerts the Investor when the transfer of funds is complete, and forwards fully executed documents to the Investors for their record keeping.  

Good luck with your investment!