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Laura Anthony, Attorney
Legal & Compliance, LLC
330 Clematis Street, Ste. 217
West Palm Beach, FL 33401

Toll Free: 1.800.341.2684
Phone: 561.514.0936
Fax: 561.514.0832


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Reverse Merger: Going Public by Reverse Merger

In a traditional reverse merger, the shareholders of the private company going public come to control a public company (public shell) by merging it in (backing it in) to their private company. The shareholders then receive a controlling interest or majority interest in the now public company.  In addition, after going public, there is a change in the control of the board of directors.

The most attractive feature of a reverse merger with a public shell is that the private Company can go public in a matter of weeks.

Reverse Merger Process

Once the process is completed, the name of the former shell company is changed to that of the formerly private company that is now public. Assuming that the public shell company had a trading symbol, that symbol is also changed to reflect the name change.

SEC Reporting Requirements

An information statement, commonly known as a Super 8-K, is then filed with the SEC. The 8-K is filed within four days of the private company going public and details the reverse merger, including biographies on the new officers and directors, stock issued, a complete description of the public company’s business, and financial statements drafted in accordance with GAAP standards.

If the shell company has a trading symbol it is changed to reflect the name change. The issuer files an 8-K within four days of the closing of the transaction. This SEC filing details the new company and a full description of its business, any stock issued, essential information on the Company’s officers and directors, and GAAP audited financial statements.

Free trade or registered shares of the newly combined Company may continue to trade since the Company is listed on the Over the Counter Bulletin Board (OTCBB). The public company now has the enviable option of conducting a private placement to raise capital. In order for the new shares of the Company to trade they must be registered with the SEC by the issuer filing a Registration Statement.

Going Public by Reverse Merger with a Public Shell – Advantages

  • Cost Effective – For the private Company going public, every dollar counts. A reverse merger with a public shell can, in many cases, be more cost-effective than a traditional IPO or the filing of a Registration Statement.
  • Time Effective – Just like any business, time equals money. A company can go public by reverse merger with a public shell in considerably less time than if they opted to launch an IPO.
  • Private Companies Going Public via Reverse Merger May Have a Limited Operating History – A successful IPO is generally best suited for private companies with an established history of earnings. In a reverse merger with a public shell the lack of a substantial earnings history does not prohibit a privately held company from completing a reverse merger.
  • Reduced Dilution – There may be less dilution of ownership control, compared to a traditional IPO.
  • Reduced Underwriter Requirements – No underwriter is needed: (a significant factor to consider given the difficulty companies face in attracting an investment banking firm to commit to an offering.)

Going Public – How to Prepare for Reverse Merger with a Public Shell

Find a Clean Public Shell

Securities law firms, PCOAB auditors, and broker dealers regularly deal with public companies, consequently, they may be able to locate a clean public shell.

The term “clean public shell” is often misused, but it simply means that the public shell can survive the due diligence process conducted by a securities attorney. The public shell should have no debts, liens or encumbrances, previous regulatory problems or be subject to pending litigation of any kind. All shareholder records, corporate records, board minutes and resolutions must be available. In addition, if the public shell is subject to SEC reporting requirements, all such filings must by procedurally correct and up to date.

Financial Audits Must Be Completed

SEC-qualified audited financial statements for the last two fiscal years must be completed by the Company looking to go public.

Securities Law Firm, Securities Attorney Must be Retained

Your go-to professional throughout this process is going to be your securities attorney. They, and or their securities law firm, should possess at least ten years of experience in reverse mergers, public offering, registration statements, and due diligence on public shells. Your securities attorney is going to handle everything from the due diligence on the public shell to the completion of all SEC reporting requirements.

Contact us today. Inquiries of a technical nature are always encouraged.

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