Going Public by Reverse Merger into a trading public shell company
Going Public through a Reverse Merger with a Public Shell Company
The main benefits to going public by reverse merger into an OTCBB public company shellare speed of going public and an already existing shareholder base. The benefit of an existing shareholder base is twofold. First, it saves time and second, itmay increase the likelihood that a liquid market will develop sooner. On theflip side, an existing shareholder base can also be a big liability, as hostileshareholders may want to sell as soon as practicable, which can literallydestroy a newly trading company’s share price.
1.The first step in completing a reverse merger is to locate a 1934 Exchange Act United States shell company (the “Public ShellCompany”) which has no or minimal operations and is listed on the OTC BulletinBoard. You can begin your search by Googling "public shells for sale". The Public Shell Companyand the Company will enter into a letter of intent indicating the partiespreliminary intentions to engage in a reverse merger transaction which will besubject to the satisfactory completion of due diligence by both parties. Going Public, LLC helps the Companylocate and evaluate an appropriate Public Shell Company based on many factorsincluding the consideration willing to be paid by the Company for the PublicShell Company, the amount of acceptable dilution willing to be endured by theParent and the appropriate mix of cash and equity paid to the Public ShellCompany owners.
2.The second step is for the Company to enter into areverse merger transaction through a share exchange with the Public ShellCompany which has no or minimal operations and that is listed on the OTCBulletin Board. Pursuant to the share exchange, the Company will exchange allof its shares of stock for shares of the Public Shell Company. As a result ofthe share exchange, the Company will become a wholly owned subsidiary of thePubic Shell Company. The price ofa high quality U.S. public shell company listed on the OTC Bulletin Board typicallycosts approximately $500,000 to $750,000 or more. The purchase price, as well as, the mix of consideration(i.e. cash vs. equity) typically depends on the type of foreign operatingcompany that will undertake the reverse merger. Specifically, the stronger theforeign operating company is (revenues, profits and an operating history), themore willing the seller of the Public Shell Company is to reduce the cashportion of the purchase price and retain more shares of stock.
3.The parties typically schedule a closing date thatnormally occurs within one to two months of the execution of the letter ofintent. In order to close the reverse merger transaction, the Company must havetwo years of audited financial statements prepared in accordance with GenerallyAccepted Accounting Principles (“GAAP”), as well as up to date reviewedquarterly statements. Thesefinancial statements must be filed in a “Super 8-K” with the SEC within fourdays of the closing date of the transaction. The “Super 8-K” must include among other things, the termsof the transaction, a description of the operations of the Company and thefinancial statements. The shareholders of the Company will now control the OTCBulletin Board company which has its shares quoted on the OTC Bulletin Board.
Public shells for sale.