When considering businesses, working with a shell and reverse mergers is one way to grow a business that has little to no operation at a given time. In this article, we will look a little deeper into what a reverse merger shell is and how it can benefit businesses everywhere.
A shell business is essentially a business or company that doesn’t have any operating business at the current moment. This might include businesses that have terminated their development or marketing operations, but the corporation still exists. These shells often have a shareholder that is the base of the company. The shell might also be void of assets or cash. Sometimes, these shells are from extremely old companies or extremely new companies.
A reverse merger is the act of a private company buying the shell company, which in turn effect a merger of both the private and public companies while keeping the public company as the surviving entity. Typically, the name of the original shell company is then changed to the private companies name, essentially rebranding the original company. When the merger takes place, the private company must sign quite a bit of paperwork to finalize things.
Advantages of a Reverse Merger Shell
There are several advantages of this reverse merger through a shell. One advantage is the fact of saving money. It truly depends on the shell that is being acquired and what assets are involved. Sometimes, there are no commissions that must be paid.
Another advantage of this merger option is the control of the company. Since a private company is purchasing a public company, the private company essentially takes over the public company and takes control. There are usually a large number of shareholders in the company, which results in quite a few insiders. Even if the shareholders only have a little bit of stock, they will still remain in much control of the business aspects.
There is another major advantage of these mergers, and that is by helping provide better stock incentives for employees. When the company merger is complete, it can help provide stock incentives by providing more bonuses or stock options. This is a better way to motivate and keep employees close as well as attracting more personal.
Disadvantages of a Reverse Merger Shell
There are several disadvantages that make this option less than ideal for many business entities. One disadvantage is the public company having problems. Usually, if the shell company has problems like this, they must be addressed rather quickly before the merger takes place. If the problems aren’t addressed, they can cause other, more major problems in the future.
Another disadvantage is the “bad shell”. These shell companies are essentially companies that are not reporting everything. With many unknown facts, these shell companies can be a bad investment for the private company trying to buy them out. It is important to look through as many records as possible to try to find these skeletons before the merger is completed. If not, it can have quite the effect on the final merged company.
One of the most major disadvantages of this merger type is finding an initial shell, public company to work with. These companies are not merely sold to companies who have the most money, but they are usually handed over to companies that already have a foothold in the shell company to begin with. Typically, these companies have stock that will hold some value to the private company after the merger is complete.
Reverse mergers with a shell company is essentially a shell company being bought out by a private company with the intent of rebranding a company to start it up again. Usually, these shell companies are just companies that have stopped business operations, and the private companies come in to revive them in a sense.
As with anything, these reverse merger shell companies have their advantages and disadvantages. A private company should always consider these things, along with the past information about the shell company, before finishing their merger to create their new company. The use of reverse mergers with shell companies is becoming more popular as the years go by, and many companies are getting on board.