Residents of Colorado who have a privately owned business have a number of options for making their business public, including conducting a reverse merger. Business owners may consider using a reverse merger over a traditional initial public offering, which requires an investment bank to underwrite and issue shares of the business, because the process of a reverse merger is shorter, less complicated and less costly.
In traditional IPOs, the investment bank helps with generating interest in the company’s stock and gives counsel regarding what the initial pricing should be. Traditional IPOs use both capital raising and the go-public process. These two functions are separated in reverse mergers, which makes investors and corporate managers view them as appealing strategic options.
Shell companies are often used by financial institutions and investment banks as tools to complete reverse mergers. During a reverse merger, the investors of a privately owned business obtain most of the shares of a public shell company. The purchasing entity is then combined with the public shell company.
Before the deal is initiated, shell companies can get registered with the SEC; this makes the registration process less costly and less complicated. In order to complete the deal, shares are traded between the private company and the public shell so that the private company is able to obtain the shell’s stock and become a public company.
Reverse mergers can be used by private companies to become public companies without having to generate capital. These types of mergers can be completed within a few weeks compared to traditional IPOS, which can take up to a year to complete.
An attorney who practices business and commercial law may assist clients with the sale and dissolution of their business. The attorney may help protect the rights and interest of clients during certain business transactions, such as mergers.