When the public company has minimal operations, it is called a shell. Thus, the term “Reverse Shell Merger”. What happens in a reverse merger? Basically, a private company (the “Buyer”) merges into public one. The private company purchases control of the public company, at least 51%, and merges into it. When the merger is complete the Buyer becomes the publicly traded company in its own right.
The SEC considers two types of companies to be shell companies.

The first is called a “blank check company.” A blank check company is a development stage company that has no specific business plan or purpose or has indicated its business plan is to engage in a merger or acquisition with an unidentified company or companies, other entity, or person.
The second is defined by the SEC, which says that a shell company is a company that has no or nominal operations, and either:
* no or nominal assets;
* assets consisting solely of cash and cash equivalents; or
* assets consisting of any amount of cash and cash equivalents and nominal other assets.
How is a company deemed to be a “shell”? The public company may be the remnant of a bankrupt or sold organization, its business plan was not executed correctly or it was unable to raise sufficient capital to continue its operations. Sometimes, a group of investors raise capital for specific purpose commonly referred to as a SPAC. A SPAC is a shell that has been pre-funded by investors and formed for the purpose of purchasing a private company and vending it into a shell. However, if the SPAC can not identify a candidate to purchase in eighteen months the SPAC will usually be disbanded and approximately 90% of the money is returned to the investors.

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