Reverse Mergers And Alternate Ways To Raise Capital
ByFrank Roberson
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Reverse mergers are considered as a worthwhile pursuit by many company directors and they start planning for the day when their up-and-coming young company can claim its place of the public stock market as a publicly listed company.
Yet and still, there are varied methods that a closely held private company can use to go public and attract capital. The most common is the IPO (Initial Public Offering). An IPO is when a once private company originally makes an offer to sell its stock to the general investing public.
When a private business concern visits the requirements needed to do a reverse merger - sometimes called a reverse takeover - with a public shell corporation, it is as a procedure for entering the capital markets quickly and perhaps providing the private company founders an exit strategy.
In the instance above, the publicly traded company is called a "shell," since all that remains of the original business is the corporate organization and trading ability.
In public shell reverse mergers the shareholders of a private business purchase control of the public shell, merging it with the private company. The private company's shareholders get the greatest portion of the stock of the public shell company, thereby controlling its board.
Of course, the specifics pertaining to a reverse merger are many, and possibly an overview of the character of a shell company is a course of action that should be discussed with a experienced securities attorney with a well-grounded knowledge of all the pertinent Securities and Exchange Commission (SEC) rules.
When contemplating a reverse merger with a corporate shell, a mass of very important questions command an explanation. Principal ideas spring forth, including the following: acquisition consultants, public company capitalization, private placement memorandums (PPM), market makers, form 10 shells, mergers and acquisitions (M&A), form S-8 stock for company founders and directors, accredited investors, SEC accounting practices, strategic planning, rules about raising capital, the role of the SBA (Small Business Administration), and the Securities and Exchange Commission (SEC).
Professional consulting is a requirement before entertaining 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.
Some of the benefits from taking a privately held company public with a reverse merger are better ways to achieve capital formation, since the available sourcing is much greater versus what a private company can attract. Furthermore, if there is a high enough interest from the investing public, the investment outlook about the business increases; it could sustain a secondary trading market for the company’s stock. The company can also retain talent by providing stock incentives. The resulting public company’s securities can also be used as currency for acquiring other businesses (Mergers and Acquisitions).
The myriad rewards of taking a private company public far prevail over the alternative of remaining a closely held private company. The esteem connected with a public corporation is a bonus; the improved circumstances for capital formation for corporate growth and expansion are perfect reasons for becoming a publicly listed company. A reverse merger with a public shell company has its place within the available go public resources.
Franklin A. Roberson is a reverse merger and financial consultant proposing funding options for private as well as publicly traded companies; get more information about Mr. Roberson and reverse mergers.
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