Held Reverse
Reverse Merger and Public Shells
Reverse mergers are considered as a worthwhile pursuit by many private company CEO’s and CFO’s and they contemplate the day when their up-and-coming young company can come into the fold of the capital markets as a publicly listed company.
Nevertheless, there are many ways that a private business can use to go public and engage in capital formation. The most common is the IPO (Initial Public Offering). An IPO is when a previously closely held private company first makes an offer to sell its shares to the investing public.
When a private company visits the requirements needed to do a reverse merger – at times called a reverse takeover – with a shell corporation, it is as a means for becoming a publicly traded company quickly and perhaps offering the private company founders an exit strategy.
In the instance above, the publicly traded company is referred to as a “shell,” because all that remains of the original business is the corporate organization and trading structure.
In public shell reverse mergers the shareholders of a private business purchase control of the public shell, and then merge it with the private business. The private company’s shareholders get the biggest portion of the shares of the shell company, in that way keeping control of its board of directors.
Yet and still, the finer nuances pertaining to a reverse merger are countless, and possibly an overview of the character of a reverse merger with a public shell is an item that should be broached with a competent securities attorney with a vast understanding of all the SEC (Securities and Exchange Commission) rules and regulations.
When considering a reverse merger with a shell company, a legion of items command an answer. Crucial concepts spring forward, including the following: business plan, private placement memorandums (PPM), market makers, public float, mergers and acquisitions (M&A), form S-8 stock for company founders and directors, piggy back registration rights, regulation D (reg. d) rule 504, rule 505, and rule 506, SEC accounting practices, strategic planning, rules about raising capital, NASD broker/dealers, and the Securities and Exchange Commission (SEC).
The best going public advice should be sought before contemplating a reverse merger, since many private company officers are inexperienced and not aware of the pitfalls of going public via a reverse merger with a public shell.
A few of the benefits as the result of taking a private company public with a reverse merger are better ways to get capital, since the sources available are more available versus what a private company can attract. Furthermore, if there is a high enough interest from the investing public, investment attention regarding the business grows, it could provide a secondary trading market for the company’s stock. The company can also keep key personnel by offering stock incentives. The resulting public company’s stock can also be provided as currency for acquiring other businesses (Mergers and Acquisitions).
The countless advantages of going public with your company far prevail over the option of remaining a private concern. The esteem related with a publicly traded corporation is a plus; the superior circumstances for raising capital for company growth are exemplary reasons for becoming a public company. A reverse merger with a public shell company has its place within the available go public strategies.
About the Author
Frank Roberson is a reverse merger and corporate financial consultant with a lifetime of experience helping private and public businesses to raise capital; get more information about Mr. Roberson and => reverse mergers
Reverse Logistics Association
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