What Is a Reverse Merger with a Public Shell

2 What is a Reverse Merger with a Public Shell?

A Reverse Merger is a transaction where by the private company shareholders may gain control of a public company by merging it in with their private company. The private company shareholders receive a substantial majority of the shares of the public company (normally 85% to 90% or more) and the control of the board of directors. The transaction can be accomplished in as little as two weeks, resulting in the private company becoming a public company. The transaction does not go through a review process with state and federal regulators because the public company has already completed the process. The transaction involves the private and shell company exchanging information on each other, negotiating the merger terms, and signing a share exchange agreement. At the closing the public shell company issues a substantial majority of its shares and the board control to the shareholders of the private company. The private company shareholders pay for the shell and contribute their private company shares to the shell company and the private company is now public.

Upon completion of the reverse merger, the name of the shell company is usually changed to the name of the private company. If the shell company has a trading symbol it is changed to reflect the name change. An information statement, called an 8-K, must be filed within 15 days of the closing. The 8-K describes the newly combined company, stock issued, information of new officers and directors, and financial information. The Financial statements must be audited to US GAAP, standards, and the SEC allows a maximum of 75 days to amend the 8-K with audited financials if necessary.

If the shell company is listed on the Bulletin board, the registered or “free trade” shares can continue to trade. The company can do a private placement immediately. To trade new shares offered by the public the newly combined public company must first register the shares with the SEC. This process takes three to four months and normally requires filing a Registration statement with the SEC under Reg. SB-2 or SB-1.

If the shell company does not have a symbol, an application for a symbol is usually made to the NASDAQ Bulletin Board. The application for a symbol requires filing a Form 15c211 by a market maker that is a member of the NASD. The Bulletin Board has no financial requirements. A listing will be granted if the affairs of the company are in order and the company answers the questions posed by NASDAQ.

Advantages of Going Public Through a Reverse Merger or a Public Shell Purchase

 Increased Valuation: Typically publicly traded companies enjoy substantially higher valuations than private companies.  Capital Formation: Raising capital is usually easier because of the added liquidity for the investors, and it often takes less time and expense to complete an offering.  Acquisitions: Making acquisitions with public stock is often easier and less expensive.  Incentives: Stock options or stock incentives can be useful in attracting management and retaining valuable employees.

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ADDITIONAL TEMPLATE PREVIEWS Click Link to Preview Document Guides LOI Tools and Templates  Anatomy of LOI - Ver1 Full Buyout  Anatomy of LOI - Ver2  Asset Purchase - Ver1  Asset vs. Stock Purchase  Asset Purchase - Ver2  Purchase Price Payment  Stock For Cash Considerations  Stock For Stock  Ways to Structure the Deal - Ver1  Stock For Cash & Stock  Ways to Structure the Deal - Ver2  Earnout Partial Investments  Ways to Structure the Deal - Ver3  Series A Preferred  Structuring Effective Earnouts  Series B Preferred  Tax Implications Presentations  What is a Reverse Merger?  Presenting the Deal - Ver1  Presenting the Deal - Ver2 (No Preview)  Presenting the Deal - Ver3  Presenting the Deal - Ver4  Presenting the Deal - Ver5  Business Sale Presentation

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