What is a Reverse Merger?
The definition of a reverse merger is when a public shell corporation mergers with an operating private business.
A reverse merger occurs when a shell corporation acquires a private business, and changes its name to the private company. Shell corporations usually have no assets of any significance nor any employees. Reverse mergers are not as good as an IPO because you cannot raise money unless the company does a private placement. Business do private placement to raise money.
We do not advocate reverse mergers.
Most investment banks don't like reverse mergers. The best way to raise money is to do a private placement and raise some seed capital and then do an IPO an initial public offering.
There are a many places to find capital for a business instead of a reverse merger. Capital sources include loans, lines of credit, factoring, seed capital and venture. Please see our website which has information on shell corporations, raising capital, going public and more.
Why are they called public shell corporations? They are called shell corporations
because the only thing left from the old company is the corporate shell structure.
The benefits of a reverse merger in comparison to Initial Public Offering (IPO) include the following: a company will usually receive a higher valuation, it is suppose to be quicker and their will be less dilution of ownership. However it is just as easy to do a registration statement and do a self filing or direct public offering. It is superior to doing a reverse merger with a public shell corporation. This is because public shell corporations are ripe with past problems.
A reverse merger with a reporting public shell company that has a symbol maybe a little quicker but they are expensive. There can be undisclosed liabilities that one of the many reasons we do not recommend a reverse merger and suggest people avoid them and take their company public directly.
About the Author
Frank Roberson is corporate financial consultant specializing in public company information and shell corporations. Please visit Mr. Roberson's website for further resources about taking companies public.
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