A public shell reverse merger is a type of merger that is used as an alternative to making an Initial Public Offering (IPO). A public shell—a company that has no operating history, no liabilities, and no assets—is merged into a privately held company. The management of the private company is in this way able to take control over almost all of the public shell’s controlling interest—almost all the company shares—and the board of directors.
A public shell reverse merger takes much less time than IPO (IPO’s can take months, while a public shell reverse merger can be completed in a matter of a few weeks). This is possible due to the fact that most of the legalities and government requirements in this regard have already been previously met by the public shell (which has already gone public some time before). At the end of the merger those in charge of the private company gain control of the public shell’s shares, and the two companies’ shares are merged into one, with the private company becoming public.
Besides taking less time and government footwork to complete, a public shell reverse merger can be better for several other reasons. Most of the merged company’s shares are of course held by the company, meaning that the shares can now be sold for a considerable amount of capital that can be used to recover for the costs incurred through the merger. The merger is also less expensive than a regular IPO, owing to a number of factors; for instance, an underwriting company isn’t required to complete the action.
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