A Reverse Merger  (Reverse Merger Shell Company)

is accomplished by the shareholders of the private company selling all of their shares in the private company to the public company in exchange for shares of the public company.

While a reverse merger transaction is technically a takeover of the private company by the public company, it is called a reverse merger because the public company involved is typically a "shell" (also known as a "blank check company", "capital pool company" or "cash shell company"). There are two ways for a privately-held company to go public:

• Through an initial public offering of stock (IPO)

• Reverse merger

A reverse merger typically issues such a large number of shares to acquire the private company that the former shareholders of the private company end up controlling the public company. Called a shell company.

In a reverse merger

shareholders of the private company purchase control of the public shell company and then merge it with the private company. The publicly traded corporation is called a shell company since all that exists of the original company is its organizational structure. Mortgage Info | Investment Banking

The private company shareholders receive a substantial majority of the shares of the public company and control of its board of directors. The transaction can be accomplished within weeks. If the shell is an SEC-registered company, the private company does not go through an expensive and time-consuming review with state and federal regulators because this process was completed beforehand with the public company.

The transaction involves the private and shell company exchanging information on each other, negotiating the reverse merger terms, and signing a share exchange agreement. At the closing, the shell company issues a substantial majority of its shares and board control to the shareholders of the private company.

The private company's shareholders pay for the shell company by contributing their shares in the private company to the shell company that they now control. This share exchange and change of control completes the reverse takeover, transforming the formerly privately-held company into a publicly-held company.

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