Nevertheless, there are many ways that a private business can employ to become a publicly traded company and raise capital. The most common is the Initial Public Offering (IPO). An IPO is when a once closely held private company becomes a public company and makes an offer to sell its stock to the investing public.
Yet and still, the high cost associated with a standard IPO is a prime consideration for cash-flow challenged businesses looking for less expensive alternatives, such as a reverse merger with a public shell corporation.In the instance above, the publicly traded company is called a “shell,” since all that’s left of the original company is the corporate organization and trading structure. When a private business concern studies the feasibility of doing a reverse merger with a public shell corporation — at times called a reverse takeover — it is commonly perceived as a way for becoming a publicly traded company fast, and perhaps providing the private company founders an exit strategy.
In reverse mergers, the shareholders of a privately held company purchase control of the shell corporation, merging it with the private company. The private company shareholders get the biggest portion of the stock of the public shell company, and in that way nominate its board of directors.
Of course, the specifics involved in a reverse merger with a shell corporation are many, and an overview is a course of action that should be discussed with your attorney. To be certain of receiving the best counsel, get a securities attorney with a well-grounded knowledge of all the applicable SEC (Securities and Exchange Commission) rules.When considering a reverse merger with a corporate shell, a huge number of concepts take center stage, insisting on an answer. A few of them are: Mezzanine capital, private placement memorandums (PPM), initial company valuation, public float, transfer agents, form S-8 stock for company founders and directors, accredited investors, corporate and securities law, investor relations, investment banking, capital sourcing, NASD broker/dealers, and the SEC (Securities and Exchange Commission).
All the above items need to be consulted with an experienced securities lawyer. The best going public advice is a requirement before contemplating a reverse merger, since many CEO’s are inexperienced and not aware of the pitfalls of going public via a reverse merger with a public shell corporation. Many new Securities and Exchange Commission rules pertaining to reverse mergers require the merged corporation to backtrack and provide much more information than required by previous regulations.
Some of the benefits of taking a private company public with a reverse merger are more efficient ways to obtain capital, since the variety of available sourcing is greater versus what a private business can attract. Furthermore, if there is a high enough interest from the public, investment attention about the company grows, and it could uphold a secondary trading market for the company’s stock issue. The business can attract and retain key associates and business managers by providing stock options and the newly merged company’s securities can be used as currency for acquiring other businesses, as in Mergers and Acquisitions (M&A).
The limitless rewards of becoming a publicly traded company far overshadow the alternative of remaining a private concern. The esteem related with a public corporation is a bonus, and the improved circumstances for capital formation and corporate growth, are more than ideal reasons for becoming a publicly traded company. A reverse merger with a public shell corporation has its place within the available go public resources, and is an option that should be considered with the help of an SEC savvy securities attorney.
Author: Frank Roberson
Article Source: EzineArticles.com
Provided by: Guest blogger
