If you are looking to take your New York private business public, consider the benefits and drawbacks of a New York reverse merger. Often executives and owners of successful New York businesses may wish to capitalize on that success by making shares of the business’s stock available to the public.
Having a public company provides additional benefits to businesses, including expansion of business dealings and attracting highly talented hires with offers of stock options. However, of course risks abound.
In a reverse merger in New York, investors of a privately-held company acquire a majority of the shares of a publicly-held “shell company,” which is then merged with the privately-held company. To consummate the deal, the private company trades shares with a public shell in exchange for the shell company’s stock, transforming the acquiring private company into a public company.
An advantage of undertaking a reverse merger is the comparative ease of transitioning into a public company. Typically, shell companies are used by investment banks and financial institutions as vehicles to complete these types of deals because the shell companies are simply structured and can be registered with the SEC easily and inexpensively prior to the reverse merger.
Also, acquiring a shell company is a way to work around the more conventional route of initial public offerings (IPOs), which may take several months to over a year to complete. Another advantage of a reverse merger is that, generally, it gives the newly-merged public company greater liquidity and access to valued capital markets. This simplified process is, often, favored because it allows New York business owners and executives to create a publicly-held company without having to initially raise capital.
A potential disadvantage is the significant regulatory and compliance requirements that comes with being a publicly-traded company. The requirements are significant. To alleviate this risk, newly-public companies sometimes turn to experienced investors and managers familiar with the role of officers and directors of a public company. Another solution is to hire employees and consultants, such as attorneys and financial professionals with relevant experience, to bridge the compliance gap.
- Reverse Merger Compliance & Disclosure Requirements: SEC Compliance Basics
- SEC Regulation D – Private Offerings: NY Startup Law
- Successor Liability in New York: Suing an Acquiring Company for the Actions or Inactions of the Acquired Company
- Reverse Discrimination at Universities in New York
- New York Business Plans or Private Placement Memorandum? An Introduction
- New York S Corp vs. LLC Basics: Choosing your Corporate Entity in New York