What is a Reverse Merger?
A Reverse Merger is a transaction whereby the shareholders of a private company gain control of a public company by merging their company into the public company. The private company shareholders receive a substantial majority of the shares of the public company (normally 85% to 95% or more) and the control of the board of directors in exchange for 100% of the shares in their company. The private company shareholders pay for the shell and contribute their private company shares to the shell company.
A Reverse Merger is a process where by a privately owned operating company purchases the controlling shareholders position (usually 85% or more) of a “public” corporation by the means of merging the two companies together. The privately-owned company usually provides the operating business and the public company provides the “public structure” of having shareholders, having previously filed registration documents with the Securities and Exchange Commission (SEC), having a trading symbol, and its securities being traded on some organized securities market or exchange. The relative interests of the public “shell” and the private business merging into the “shell” depend upon many things, some of which are the relative sizes of each company, assets, liabilities, net worth, sales, profits, useable tax loss carry-forwards, number of shareholders, what securities exchange the common stock is trading, company histories, and other factors.
