Quick Answer
Most DPPs are sold as Regulation D private placements to accredited investors with a private placement memorandum, not a prospectus. Public DPP offerings must register with the SEC and provide a prospectus, but even they have limited secondary market liquidity compared to stocks or bonds.
Now that you know the different Direct Participation Program (DPP) types, this section covers how they are sold to investors: as either private placements or public offerings.
How Do Private Placements and Public Offerings Differ?
| Feature | Private Placement | Public Offering |
|---|---|---|
| Registration | Exempt from full SEC registration (Regulation D) | Fully registered with the SEC |
| Investors | Accredited investors (or limited number of non-accredited) | General public |
| Disclosure document | Private placement memorandum (PPM) | Prospectus |
| Liquidity | Highly illiquid; restricted resale (subject to the restricted-securities resale rules) | More liquid but still limited secondary market |
| Suitability | Higher income/net worth requirements | Standard suitability |
Most DPPs are offered as private placements under Regulation D (Reg D), not as public offerings. Here is how the two paths differ:
- Private placements require a private placement memorandum (PPM) rather than a prospectus
- Public DPP offerings must file a registration statement with the SEC and provide a prospectus to investors
- Even public DPPs have limited secondary market trading compared to stocks or bonds
- Private placement securities are restricted, and resale is governed by the restricted-securities resale holding periods
Accredited investor requirements: Private placements are generally limited to accredited investors, which includes individuals with a net worth exceeding $1 million (excluding primary residence) or annual income exceeding $200,000 ($300,000 jointly with a spouse) for the past two years.
Think of it this way: Because DPPs are illiquid and carry high risk, regulators want to make sure only investors who can afford potential losses are participating. That is why private placements have stricter suitability and net worth requirements.
Exam Tip: Gotchas
- Most DPPs are private placements (Reg D), not public offerings. If a question asks about the typical offering method for a DPP, the answer is private placement.
- PPM vs. prospectus: Private placements use a PPM; public offerings use a prospectus. These are commonly swapped in wrong answers.
- Even public DPPs have limited liquidity compared to exchange-traded securities. There is no active secondary market for most DPP interests.
What Should You Check on Exam Day?
- Most DPPs are sold as Regulation D private placements to accredited investors, using a private placement memorandum rather than a prospectus.
- Public DPP offerings must file a registration statement with the SEC and deliver a prospectus.
- Accredited investor status generally requires a net worth over $1 million (excluding primary residence) or income over $200,000 single / $300,000 joint for the past two years.
- Even public DPPs trade in a limited secondary market compared to exchange-traded securities.