How To Take Your Company Public

Going Public through a reverse merger, often with a PIPE (Private Investment in a Public Entity) or IPO is a landmark event. The steps a company and its management team take to prepare for public shell merger will have a significant impact on the success of raising capital in a PIPE offering or IPO process, and the after market for the company’s stock. Our first advice, therefore, is to consider the points of going public  as early as possible in your planning process. Please note the market for IPO is generally limited to the largest and most established private companies; therefore, most pubic offering of less than $100,000,000 are done via private placement PIPE offerings in conjunction with a reverse merger.

Comparing Three Ways to Go Public

Traditional Underwriting

Time: 6 to 12 months

Cost: $350,000 to $1,000,000. (The company will be out of pocket at least 50% of this amount prior to completion.)

Capital: Typically raises more capital than other types of transactions.

Problems: Underwriting may be delayed or canceled. Issue price may be changed by market conditions or underwriter.

Reverse Merger or Buy an Existing “Public Shell”

Time: 2 weeks to 60 days

Cost: $300,000 to $800,000

Capital: Does not raise money but stock is now valued and tradable

Problems: Potential “skeletons” in acquired shell. Control shareholders of operating company may receive restricted shares.

Advantages: Typically, reverse merger or public shell merger is the quickest way to get public. Non-control investors may receive registered or trading shares.

Merge with a “Custom Designed” Public Company

Time: 4 to 8 months

Cost: $150,000 to $300,000

Capital: May raise money and stock is now valued and tradable

Problems: None

Advantages: Public company can be “Custom Designed” to the operating companies specifications. Shareholders of operating company receive registered shares. New corporation so no “SKELETONS” in the company. Financial expertise during the transaction. Market support after the transaction. Automatic shareholder base friendly to the “Small Cap” market.

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Types of Public Shells

A public shell is a company that has shareholders but has no or minimal assets or earnings. Public shells are also called a shell company or shell corporation.

In more formal circles they can be referred to as public shell company or public shell corporation.

4 Public Shell Types

• Trading Non-Reporting – Normally trades on the Pink Sheets (Pink Sheets is a privately owned quote service not associated with NASD and not subject to SEC reporting requirements.) A. Past reporting, a delinquent filer, no longer current with its SEC filings. May avoid SEC review if reporting is brought current.B. Never reporting. Company must file a registration statement to become a reporting company and will normally require a SEC review.May qualify for the “piggy back” exemption if the company becomes current and compliant with the SEC in its reporting requirements.C. Designated Pink Sheet Directed trading pink sheet, does not have a 15c211 on file with the NASD. No NASD symbol. On a level two quote, the market maker will quote the bid/offer 1 share by 1 share only.
• Reporting Non-Trading 12G companies, normally just filed a blank 10k with no business
  Usually one shareholder
  No symbol
  Gray sheet, an inactive symbol
  May or may not be reporting
  No active market maker
  Market maker must file a new 15c211 with the NASD to get symbol
  A shareholder base of 50 or more is necessary to get a symbol
  Reporting company will have an audit.

• Non-Trading Non-Reporting Normally only a shareholder base
  No symbol
  May or may not have been a reporting company
  Must file with SEC full business information and audits to become reporting
  Market Maker must file a new 15c211 with the NASD to get symbol This type of shell is least attractive

• Trading and Reporting – OTC/BB Reporting with the SEC, must file annual 10Ks with an audit, 10Qs and 8Ks. Can be a 15D reporting under the ’33 Act, or a 12G reporting under the ’34 Act.