What is a Reverse Merger?

A “reverse merger” is a method by which a private company goes public. In a reverse merger, a private company merges with a public company with no assets or liabilities. (The public company is often called the “shell” corporation). The publicly traded corporation is called a “shell” since all that exists is its corporate shell structure. By merging into such an entity, a private company becomes public.

The transaction can be accomplished within weeks. If the shell is a Reporting SEC registered Company, the private company does not have to go through an expensive and time consuming review process with the state and federal regulators because the public company has already completed the process.

The transaction involves the private and public shell company exchanging information on each other, negotiating the merger terms, and signing a share exchange agreement. The private company merges into a public company and obtains the majority of its stock (usually 90%+). The private company will then change the name of the public corporation (usually to its own name) and will appoint and elect its management and Board of Directors.