There are several reasons why entrepreneurs desire to take their company public: access to public markets, liquidity for shareholders, increased transparency and the ability to use their stock to acquire other companies and to raise additional capital as needed. Reverse mergers are especially effective for companies seeking to attract top management talent.

Entrepreneurs who take their companies public via a reverse merger can also expect to encounter fewer barriers. A well-structured, well-advised company should be able to close a reverse merger in about sixty to ninety days at a cost significantly less than a traditional IPO. Major costs include accounting and attorney fees and the cost for the public shell, which may include consulting fees. Additionally, their may be outstanding liabilities (debt), and there is always a percentage ownership retained by the previous shareholders of the public entity surviving the merger. The ownership interest can range from as little as 1 to 10 percent, depending on the negotiated deal between Buyer anmd Seller. This is one of the reasons to have an experienced financial consultant handle the transaction for you.

It is important to note that following the reverse merger, the only shareholders typically able to trade in the open market will be the original shareholders of the public shell. It is the goal of the private company to acquires as much of the stock of public entity as possible. Do not be concerned with too few shareholders with freely tradable shares. The reality is that the Buyer has purchased the shell to be able to raise additional capital so there will be more than enough free trading shares in the float once the new company has completed their proposed PIPE transaction. In addition to significantly lower costs and a shorter timeframe to go public, the reverse merger is subject to much less market risk. Once you file with the SEC your only risk is satisfying any “comments” you may receive from the SEC to gain approval for trading. Your deal is not subject to raising capital to become publicly traded. Many companies choose to raise their equity capital after their reverse merger is completed and they are trading.

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