It’s Business, And It’s Personal

Using reverse mergers

On Behalf of | Jun 27, 2018 | Buying & Selling Businesses |

Business owners in North Carolina who want to take their private business public have multiple options. One option, a reverse merger, is a cheaper, shorter and simpler alternative to a conventional initial public offering. Its process involves using an investment bank to underwrite shares of the company and then issue them.

Using an investment bank to help bring a company public can be beneficial. This is because the bank will file the regulatory paperwork and assist authorities with reviewing the deal. It will also help create interest in the stock.

While a traditional IPO merges the funding function and go-public process, using a reverse merger allows the companies in question to separate them. This makes reverse mergers an ideal strategic tool for both investors and corporate managers.

With a reverse merger, the investors of the private company that is to go public can obtain most of the shares of a public shell company. The public shell company is then joined to the purchasing entity. Financial institutions, including investment banks, often employ shell companies as mechanisms with which to complete the deals. The shell companies make the registration process cheaper and less cumbersome because they can be registered with the SEC before the deal is finalized. To finalize the deal, the private company gives shares to the public shell in return for the shell’s stock, making the private company in a public entity.

An attorney who practices business and commercial law may help clients handle the legal aspects of buying and selling businesses. Legal counsel could also negotiate purchase terms on behalf of a client, working to make sure that the rights and interests of the client are upheld.