Reverse Merger: Have They Taken the Reverse out of Reverse Merger?
Are the promoters and consultants destroying the market for Reverse Merger? First lets take a look at reverse merger.
15c211, reverse merger, direct public offering, regulation d, pink sheets
Are the promoters and consultants destroying the market for Reverse Merger? First lets take a look at reverse merger. 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 instances, the shell may have some amount of cash remaining for investment in the new enterprise. 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 the shell corporation stock (usually 90-95%) through a new issue of stock for the private enterprise or assets.
The public corporation will normally change its name to the private companys name and elect a new board of directors which will appoint the officers.
The public corporation will usually have a base of shareholder sufficient to to meet the 300 shareholder requirement for eventual admission to quotation on the NASDAQ Small-Cap Market, Or some other market.
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, say in the neighborhood of 0,000.00- to 700,000.00 for a Bulletin Board shell they get 90-95% of the stock.
Not only is the price extravagant, he will also take the reverse out of Reverse Merger, by insisting on a stipulation that you wont do a reverse split and reduce the number of shares outstanding. By reverse splitting the shares you are reducing his 10%. Which was the original intent of the reverse merger.
What a bargain 0,000.00 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 share. I am using the old math not the new.
After the market maker files and the company is trading on the Otcc Bulletin Board. 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