Small and mid-size companies looking to go public usually think IPO (Initial Public offering), but find it difficult to get an underwriter to look at them. They go out an engage a consultant that advises them to do a reverse merger and they usually jump into it head first without exploring the options.



If you have read some of my previous articles you may find this repetitious, but I can’t emphasis enough the importance of selecting a good consultant. A consultant that is working for you and you alone, and does not have an interest in selling you a corporate shell and getting your company trading, so that they can sell their stock and move on to the next victim.

What are the options?

(1) An initial public offering (ipo) is the absolute best but the most difficult and most expensive but with the financing that is raised it will enable the company to be listed on one of the more visible markets. Such as Nasdaq Small Cap, or American Stock Exchange.

And if your company is big enough it may qualify for the Nasdaq National Market System, which would make your company attractive to analyst and institutional investors.

(2) A Reverse Merger is for the those small and mid-size companies that are aggressive and will like to grow quickly and find that by being a public company they can achieve those goal sooner. I will give you some of the benefits of being a public company later.

In a reverse merger the privately held company purchases a publicly traded

company with substantially no assets (a “shell"). The shell issues stock to the owners of the private company. The shell issues sufficient stock, usually 90-95% enough to effectively control the public company.

The public company will normally change its name to the private company’s name and elect a new Board of Directors which will appoint the officers. The public corporation will usually have a base of shareholders sufficient to meet the 300 shareholders requirement for eventual admission to quotation on the NASDAQ Small Cap Market or the American Stock Exchange (if the private company’s financial condition substantiates either NASDAQ or AMEX requirements). Although some shells have as few as 35-50 shareholders and currently listed (or can apply for listing on the OTC Bulletin Board or the NQB Pink Sheets.

(3) Regulation D (504) offering. Under the Securities Act of 1933, any offer to sell securities must either be registered with the Securities and Exchange Commission or meet and exemption.

Regulation D provides three exemption from registration requirements, allowing some smaller companies to offer and sell their securities without having to register the securities with the SEC.

While companies using a Regulation D exemption do not have to register their securities and usually do not have to file reports with the SEC. They must file what is known as form D.

Under Regulation D (504) you are allowed to raise up to $1,000,000.00 In a twelve month period. Some of the characteristics of Regulation D are:

Securities can be sold to an unlimited number of persons.

General solicitation or advertising can be used to market this securities.

These securities are freely traded and not “restricted" which investors can sell their securities in the open market without registration.

This securities are not exempt from the Securities Act of 1933 anti fraud provision.

Benefit of going public: Your access to capital will increase, since you can contact more potential investors.

Your company may become more widely known.

You can obtain financing more easily in the future if investor interest in your company grows.

Controlling shareholders such as the company’s officers or directors, may have a ready market for their shares at retirement.

Your company may be able to attract and retain more highly qualified personnel if it can offer stock options, bonuses or other incentive with a known market value.

Company can use stock for acquisition purposes.