the private operating company shareholders exchange their shares of the private company for either new or existing shares of the public company
* At the end of the transaction, the shareholders of the private operating company own a majority of the public company and the private operating company has become a wholly owned subsidiary of the public company.
A “Reverse Merger” allows a privately held company to go public by acquiring a controlling interest in, and merging with, a public operating or public shell company.
A “shell company” a publically traded company with (1) no or nominal operations and
(2) either no or nominal assets or assets consisting solely of any amount of cash and cash equivalents.
The Cost of the Shell
In a Reverse Merger transaction, the private operating business must pay for the public shell company.
That payment may be in cash, equity or both.
The average cash value of a fully reporting public entity with no liabilities, no issues and which is otherwise “clean” is between $280,000 – $400,000.