It is simple to take a company public. The traditional method it go public is by making an Initial Public Offering of the stock of the company. It is sometimes necessary to raise some money for the company and this is one of the better ways of getting the money. This makes the common man to become aware of the doings of the company. The people will become interested in the activities and will want to get involved. This IPO is going to make the company money and at the same time raise the company visibility in the eyes of the people.
The second method is known as a reverse merger. This is not used by companies of repute because there is no completeness in reporting. Only those companies which are not having a high profile will opt for this method. However this back –shelving is also used for an effective solution in many cases, especially so, in the cases where you are dealing with penny sock companies.
For those who are new to the scene, it should as no surprise to know that Penny stock is the name given to that stock which is dealing at market prices of less than $5. This does not mean that the actual value is around $5. Companies whose shares were valued higher say at $12 or more may have dropped in value and are trading for $5. Similarly, stocks which had an initial value of around $1 may have appreciated and are trading at $4 or $5. So, the term is not to be used in too general a manner.
Penny stocks are risky ventures. They are stock which is traded in Pink slips and OTCBB meaning there is no need for any of the regular listing which is necessary for the major stocks. This means that if you deal with these stocks you are doing so at an extra risk. However since the amount invested is less, people would take the risk and try to make their mark.
There are many brokers who deal with penny stocks and you will be able to open an account with one of them who are offering good rates and incentives. The costs involved in the first venture is more and the procedure is also intricate. The number of people that have to be informed is more and thus the costs are more. The less invasive approach advocated in the reverse merger involves less expenses and needs less effort. You would also see the shell corporations who are ready to perform a reverse merger listed on the bulletin boards or the Pink slips. This makes their stocks less liquid and sometimes lesser than the major stocks.
Everything is reported to the SEC and before you move on a reverse merger you will need to do an audit of the company. The auditing firm will, in most cases, be suggested by the banks themselves. Once the minimum listings prescribed are met, one may proceed to the next step. Full disclosure is vital. If you try and cover something up, one is open to being jailed or at least be subjected to hefty fines.
It is necessary to negotiate for a better value. When the bank sets the value it will often try and set the price at a low value. This is because they hope for future appreciation in the market. This is useful for the bank since more appreciation will mean greater profits for the bank. However for the company which is going under the hammer it is necessary to try and find a good price and that too before the IPO.
Next we have the “red herring” show. It is also known as a dog and pony show but it is the next natural step in the process. This is the time where the company’s prospectus and assets are detailed. Also the risks involved are detailed. The representatives of the bank and the company travel to each other’s banks and study the situation in depth. This procedure must be complete d within a 48-hour period of the IPO.
To launch the IPO you must wait for the bank to give you the go-ahead. The regulators will then give instructions for the trading in the new stock to begin. Remember the SEC will give the approval only if you have finished all the formalities which are necessary. Once the stock which was allocated has been subscribed fully the company has become a public company.
To proceed with a reverse merger you must identify a shell company. This is a company which was trading well previously but has now gone under. This company will be trading in shares which are only 1 penny or thereabouts. One should buy up all the shares which are of the shell company which are left in the market. Contact the owners of the shell company. They would be happy to sell you the company for an economical price. Once you have acquired the company, you merge your company with the shell company. You are now a public company which is being traded on the market.
