In a reverse merger, a private company merges with or acquires a public company (“shell”) company, for the purpose of going public.

Unlike initial public offerings (“IPO”) Reverse mergers are a nontraditional method of going public. Special Purpose Acquisition Companies (SPACs), are public shells created using a registration statement for the purpose of acquiring a privately held company.  SPACs are SEC reporting companies without ticker symbols.

After a SPAC’s registration statement is deemed effective, between 90 and 100 percent of the proceeds must be put into an escrow account maintained by an escrow agent or trustee. The SPAC typically has between 18 and 36 months to use the escrowed to complete a reverse merger with an operating private company seeking to go public. If the SPAC does not engage in a business combination in the required time frame, then the SPAC is liquidated, and the escrowed funds are returned to the investors.

Generally, a majority of the shares must approve the SPAC reverse merger. However, if holders of between 20 and 40 percent of the shares elect to receive cash, the reverse merger will not usually proceed, and the stockholders who vote against the transaction will receive their pro rata share of the funds held in the escrow or trust account.

Upon completion of the reverse merger the SPAC company must file an amendment to their registration statement disclosing the reverse merger transaction.

For further blogs about SPACs and registration statements on Form 419, please visit www.securitieslawyer101.com or contact Brenda Hamilton, Securities Attorney at bhamilton@securitieslawyer101.com or 561-416-8956.

This blog post about  registration statements on Form 10 and Form S-1 is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings or please contact Hamilton and Associates Securities Lawyers. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
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