6. Are there any investors in the float who have a large block of stock?

When you are considering how much of a float you want to remain, you have to consider how many shareholders hold a large block of stock. The best way to determine this is to examine a certified copy of the shareholders list from the transfer agent. The shareholders list contains the name of every shareholder and the number of shares they own. You will need to take into account that sometimes a larger shareholder will place shares in associated family member’s names, so be cognizant of shares that have several shareholders with the same last name listed together. Most likely they are controlled by one person. Secondly, there is a list of shareholders whose shares are held in what is referred to as “street name”. Street name shares are those shares that are held in the name of a brokerage firm such as ETrade, TD Ameritrade, etc. Street name shares are not listed under the brokerage firm in which they are held. They are listed as generic shares, which means the true holder of the shares is not identified. The street name shares are listed under CEDE & Company - which means the shares are being held in electronic format.

You may or may not be able to determine if someone has a large block of shares. For example, a shareholder holding shares under CEDE & Company may have one share certificate listed as 500,000 shares or he may have 10 stock certificates listed with 50,000 shares each. The inherent problem is that you can not determine whether there are several different shareholders who own shares or one shareholder with several share certificates that could own, as an aggregate, a large block of shares.

This leads us back to my previous discussion in Chapter VI. It is always better to err on the side of caution and reverse split the stock of the previous shell company shareholders so you do not have to deal with these types of potential problems. It is nice to have a large shareholder base - you just don’t want them to have enough shares to cripple your stock price.

It is always in your best interest to have an experienced consultant represent you when you are seeking to purchase a shell. There is a wide range of issues to anticipate, and as the old saying goes, “an ounce of prevention is worth a pound of cure”. Make sure you are retaining a reputable and knowledgeable person to represent you. Attorneys are great for the due diligence part of the purchase, however it is not their job to negotiate pricing, explore capitalization issues or examine the nuances of the shell you are about to purchase.

For further information regarding shell purchases please contact me at Ralph@ventanacapitalpartners.com

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