How can a reverse merger shell be used to go public?
A reverse merger shell has been highlighted by many financial advisors to private company shareholders as the quickest way for them to take their company public. A shell company is a public company that is non-functional although it carries actions like filing their periodic reports as per the Securities Exchange Act of 1934 commonly known as the ‘34 Act’.
Forms in which shell companies can exist
i. Failed startup companies
When a public company commences its operations and does not attain significant revenues, it may end up becoming a public shell company. Such businesses have business models that failed to live up to their expectations hence ended up failing to attain profitability. Companies of this category are known to have had limited company history and their assets are insignificant.
ii. As a public company out of business
When a public company runs out of business because demand for its products or services has gone down, it can end up being a public shell company. This kind of shell companies is common in many economies. This is because it can result from the management’s decision to auction a company’s assets but retain its name under the 34 Act. Such decisions are aimed at allowing shareholders to look for an opportunity to get an enticing reverse shell merger. Most of the public shell companies that fall into this category are known to have a strong business history and significant assets in the past.
iii. As a ‘Blank Check Company’
Some individuals may decide to form and register a company with the sole purpose of selling it as a shell company. Such companies have no known business history and no assets under their name under Act 34.
Why you should consider going public through a reverse shell merger
Are you a shareholder in a private company that plans to go public? Are you confused whether the reverse shell merger is a good option? Below is a list of reasons why you should consider a reverse shell merger.
• Reverse shell mergers are a quick method of making your private company public. When all the legal requirements of a public shell company are in order, the process of a reverse shell merger can be smooth and quick. All you need is to ensure that the attorneys of both companies work on the paperwork as quickly as possible to finalize the merger.
• It allows the creation of a strong shareholder base: Any company needs to have a shareholder base to ensure that they are actively trading and improving the liquidity of its stocks. When the number of shareholders increases, the trading in the stock of the company becomes more active. This will keep the stock prices stable and minimize its volatility.
• It makes the trading symbol available to the resultant company: A public company needs to have a trading symbol before it can engage in secondary trading and attract active capital investors. A reverse shell merger will ensure that your private company retains the shell’s trading symbol. This makes it easy to attract new investors and get permission for secondary trading.
• It makes it possible for a private company to enjoy the benefits of being a public company: There are many benefits that come with a company being public. A reverse shell merger allows a private company to become public and enjoy all the benefits of being a publicly listed company. Some of the benefits include using stock option plans in enticing, attracting, and retaining employees, using stock to trade and make acquisitions, and getting access to capital investors and capital markets.
• A guaranteed way of a private company going public: When using the traditional IPO process, you are not guaranteed of the outcome. Managers of private companies have to go through a tedious process of planning the IPO process without knowing whether it will succeed. If the financial conditions in the stock market seem unfavorable to the private company’s proposed offering, the whole deal can crumble. This leads to waste of resources and energy. A reverse shell merger, on the other hand, has a guaranteed outcome.
If you are planning to use the conventional IPO process to go public, you had better brace yourself for a tumultuous ride. With a reverse shell merger, however, the process and expected benefits are quite straightforward.