A reverse merger is a transaction where by the private company shareholders may gain control of a public company by merging it in with their private company. The private company shareholders receive a substantial majority of the shares of the public company (normally 85% to 90% or more) and the control of the board of directors. The transaction can be accomplished in as little as two weeks, resulting in the private company becoming a public company. The transaction does not go through a review process with the state and federal regulators because the public company has already completed the process. The transaction involves the private and shell company exchanging information on each other, negotiating the merger terms, and signing a share exchange agreement. At the closing, the public shell company issues a substantial majority of its shares and the board control to the shareholders of the private company. The private company shareholders pay for the shell and contribute their private company shares to the shell company and the private company is now public.

going public · public shell companies · reverse mergers

Comparing three Ways to Go Public

1. Traditional Underwriting:

• Time: 6 to 12 months
• Cost: $350,000 to $1,000,000. (The company will be out of pocket at least 50% of this amount prior to completion.)
• Capital: Typically raises more capital than other types of transactions.
• Problems: Underwriting may be delayed or canceled. Issue price may be changed by market conditions or underwriter.

2. Reverse Merger or Buy and Existing “Public Shell”

• Time: 2 weeks to 60 days
• Cost: $300,000 to $800,000
• Capital: Does not raise money but stock is now valued and tradable
• Problems: Potential “skeletons” in acquired shell. Control shareholders of operating company may receive restricted shares.
• Advantages: Typically, reverse merger or public shell merger is the quickest way to get public. Non-control investors may receive registered or trading shares.

3. Merge with a “Custom Designed” Public Company

• Time: 4 to 8 months
• Cost: $150,000 to $300,000
• Capital: May raise money and stock is now valued and tradable
• Problems: None
• Advantages: Public company can be “Custom Designed” to the operating companies specifications. Shareholders of operating company receive registered shares. New corporation so no “SKELETONS” in the company. Financial expertise during the transaction. Market support after the transaction. Automatic shareholder base friendly to the “Small Cap” market.

going public · IPO · public shells · reverse merger · taking your company public