In a Reverse Merger, an operating private company merges with a public company that has little or no assets, nor know liabilities (the "shell").
In some rare cases, the shell can have a certain amount of money left over for investment in new business.
The public corporation is called a "shell" since all that exists of the original company is its corporate shell structure and shareholders.
The private company owners obtain the majority of shares in a shell company (usually 90-95%) with a new issue of shares to private enterprise or activity.
The public corporation will normally change its name to the private company's name and elect a new board of directors which will appoint
the officers.
The public corporation is usually a base of shareholders sufficient to meet the requirement of 300 members for a possible admission to listing on the NASDAQ Small Cap Market will meet, or a different market segment.
Now to the problem or the devil is in the details:
The private company goes out perform the proper due diligence on a "shell"
after finding it to be clean, and with no adverse past history to disqualify it,
goes ahead completes the purchase.
After paying an astronomical price, for example in the neighborhood of $ 500,000.
00-
to 700,000.
Bulletin Board 00 for a shell that receive 90-95% of the shares.
Not only is the price extravagant, he will also take the reverse out of Reverse Merger, by insisting on a stipulation that you won't do a reverse split and reduce the number of shares outstanding.
By dividing the parties by the reduction of 10% is reversed.
Which was the original intent of the reverse merger.
What a bargain $ 500,000.
00 or more for 90% of nothing and it gets better,
Lets say the company has 300 shareholders and those 300 shareholders
collectively own 500,000 shares and in some cases more, and the shell has
30,000,000 million shares outstanding which the owner(s) of the shell get
keep 10% or 3.
000,000 shares.
I am using the old math not the new.
After the files of market makers and the company is trading on the Bulletin Board OTCC.
Your problems begin, lets say friends and acquaintances hear your company is now public and go out and buy some shares driving the price to
say $3.
50, 300 now to those shareholders who decide to tender their shares for pennies, who do hit the lottery and start selling it necessary for you to go out and buy shares will receive on open market.
Now back to basic math, supposing you want to maintain the 3.
50 price in order to go and buy shares.
500,000 x 3.
50 $ 1,750,000.
00 forcing
you to go raid the kid's piggy bank if you don't have the spare change.
What is now the 3,000,000 shares into the hands of the owners\ shell \"? 3000.
000 x 3.
50 $ 10,500,000.
00, Time to ask the wife for loan.
And do not forget the market makers and traders who are aware of the clever title that will come and push the price of the shares of the company.
Being the enterprising individual that they are, they will establish a short position on the stock of your company, after all they are entitle to make a living too.
Before jumping into the directory Empire State Building, to ensure that it is waiting net.
Don't get me wrong a reverse merger can be done if you have a consultant that is looking out for you and is not part of the triumvirate (shell owner, securities Attorney and consultant).
And is the same person in some cases, the implementation of all three functions.
I wouldn't recommend for you to go step out in to the mine field without
a mine detector, in some of my previous articles I suggested way to check the smooth talking consultants and shell owners before they take you to the
cleaners.
Also be aware that there are alternative ways to go public reverse merger is just one of several options, so do not jump without it, if you need to have the feeling of doing a reverse merger, insist on the procurement of all materials and not low share.
In order to prepare you to deal with the complexities of the public arena I would have to write a book not an article, but I will continue to try and inform through articles so that you will be prepare if you decide to take the
plunge and go public.
We are honest, hard work of external consultants in more than 25 years I have personally met two of them.
But there must be more.
Once you learn the alternatives to a reverse merger in order to know contact me via our website: http://www.
genesiscorporateadvisors.
with the alternatives can not be cheap, but cheaper than paying $ 500 000.
00 for 90% of nothing.
The answer to the title of this article is definitely yes! They took the back of the reverse merger.
.
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