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Reverse Merger with an OTC Shell -- How a reverse merger deal works

The public shell has existing public shareholders who may own 10% to 50% of the public company. The private company has substantial assets and business. The two companies merge to form one surviving public company with stock in public hands and substantial assets and business. This is called a reverse merger because the smaller public company is acquiring the larger private company. In an ordinary merger, the larger company usually acquires the smaller company. 

Step by Step

  • You decide now to go public with an OTC shell in a reverse merger

  • You locate a clean public shell and negotiate with the seller

  • You sign a purchase agreement

  • Due diligence and accounting statements are prepared

  • Merger documents are prepared and the merger is consummated

  • The new company files with the SEC and NASD

Note: The SEC has new rules governing shell deals. See SEC Release No. 33-8587. To find out what this means to you, contact us. 

 

  • The stock trades in the public market

  • The company may proceed with further financing in a private or public offering, if desired

Costs

Costs for an OTC shell have currently been quoted as running from $95,000 to $600,000. These prices include legal costs. ($600,000 sounds high to us, but it is out there.)  The buyer of the public shell usually make progress payments as the transaction proceeds.

The existing shareholders will have a percentage of the stock in the resulting company, generally something like 5-10%. Note - If you buy all of the stock in the company, the company is no longer public. You must leave some stock out there in public hands. The number of public shareholders is important because they will make the stock trade and give it liquidity. You can also sell more stock to existing shareholders.

Legal costs include the cost of the purchase agreement, merger, and SEC filings. There are also the costs of listing the company, the transfer agent costs, and accounting fees. 

Click here to proceed to learn more about how to go public fast using a public shell in a reverse merger and save time and money.

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Send mail to mailto:lux.investor@gmail.com with questions or comments about this web site.   Reverse Merger Info Copyright 2006 John Lux     Last modified: November 14, 2008

Contact John to have all your questions answered about reverse mergers without obligation in a friendly, relaxed manner.

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