Using Form 10 In Going Public Transactions
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Often Form 10 Shells are not a timely solution or cost effective method for a private company to obtain public company status. Most Form 10 Shells are not structured properly for a publicly traded company and most do not have ticker symbols. | Often Form 10 Shells are not a timely solution or cost effective method for a private company to obtain public company status. Most Form 10 Shells are not structured properly for a publicly traded company and most do not have ticker symbols. | ||
| − | Additionally, the private company purchasing the Form 10 Shell will have the time and expense of: (i) due diligence and completing the | + | Additionally, the private company purchasing the Form 10 Shell will have the time and expense of: (i) due diligence and completing the reverse merger transaction into the Form 10 Shell; (ii) notification to and approval of FINRA pursuant to Rule 6490; and (iii) additional disclosures including the filing of [http://www.gopublic101.com/Form-10 Form 10] Information in a "Super 8-K" which is triggered by the reverse merger. |
Purchasing a Form 10 shell does not assist a private company in becoming public; it makes it more costly, time consuming and difficult. Often a Form 10 Shell is subject to the SEC's reporting requirements but its securities are not publicly traded. As such, the purchaser of a Form 10 Shell may incur the expenses of SEC reporting yet derive no benefit because its securities are not publicly traded. As a result, the costs of Form 10 Shells exceed the expenses of a direct public offering and listing. | Purchasing a Form 10 shell does not assist a private company in becoming public; it makes it more costly, time consuming and difficult. Often a Form 10 Shell is subject to the SEC's reporting requirements but its securities are not publicly traded. As such, the purchaser of a Form 10 Shell may incur the expenses of SEC reporting yet derive no benefit because its securities are not publicly traded. As a result, the costs of Form 10 Shells exceed the expenses of a direct public offering and listing. | ||
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Exchange Act Section 12(g)(1) requires any company with total assets exceeding $10,000,000 and a class of equity security . . . held of record by five hundred or more persons to register under the Exchange Act. The measurement date for these thresholds is the last day of a company's fiscal year. It then has 120 days from that date to register. | Exchange Act Section 12(g)(1) requires any company with total assets exceeding $10,000,000 and a class of equity security . . . held of record by five hundred or more persons to register under the Exchange Act. The measurement date for these thresholds is the last day of a company's fiscal year. It then has 120 days from that date to register. | ||
| − | Any issuer may voluntarily file a Form 10 registration statement under Exchange Act Section 12(g) regardless of their assets, number of shareholders or revenues. | + | Any issuer may voluntarily file a [http://www.gopublic101.com/Form-10 Form 10] registration statement under Exchange Act Section 12(g) regardless of their assets, number of shareholders or revenues. |
A Form 10 requires that the issuer disclose much of the same information required in a Securities Act registration. This information includes, among other things, a detailed description of its business, properties, risk factors, transactions with management, legal proceedings, and executive compensation as well as its audited financial statements. | A Form 10 requires that the issuer disclose much of the same information required in a Securities Act registration. This information includes, among other things, a detailed description of its business, properties, risk factors, transactions with management, legal proceedings, and executive compensation as well as its audited financial statements. | ||
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Getting a Ticker and Trading | Getting a Ticker and Trading | ||
| − | Even though an issuer that files a | + | Even though an issuer that files a Form 10 registration statement becomes subject to the reporting requirements of the Exchange Act, that does not make the company public or qualify the company for a ticker assignment from FINRA. An issuer must still satisfy other regulatory requirements and criteria to obtain a ticker and be quoted by the OTC Market's Pink Sheets, OTCQB, OTCQX or list on a securities exchange such as NASDAQ or the NYSE. |
Generally, FINRA requires that the issuer have at least 25 shareholders who hold either registered shares or, with respect to Pink Sheet listed issuers, shares that have been held by non-affiliate investors for twelve months. The majority of the 25 holders must have paid cash consideration for their shares. Additionally, these shares in the aggregate should represent at least 10% of the issuer's outstanding securities and are often referred to as the "Float." The Float must also be somewhat evenly distributed without significant concentration in one or a few shareholders. Under FINRA rules, only a sponsoring market maker can file a Form 211 ("211"). | Generally, FINRA requires that the issuer have at least 25 shareholders who hold either registered shares or, with respect to Pink Sheet listed issuers, shares that have been held by non-affiliate investors for twelve months. The majority of the 25 holders must have paid cash consideration for their shares. Additionally, these shares in the aggregate should represent at least 10% of the issuer's outstanding securities and are often referred to as the "Float." The Float must also be somewhat evenly distributed without significant concentration in one or a few shareholders. Under FINRA rules, only a sponsoring market maker can file a Form 211 ("211"). | ||
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The Solution | The Solution | ||
| − | By undertaking a Direct Public Offering, the issuer avoids many of the expenses and risks associated with [http://www.securitieslawyer101.com/reverse-mergers/ reverse merger] transactions, including incomplete and sloppy records, pending lawsuits and other liabilities including securities violations. After a reverse merger with a Form 10 Shell, the private company is forever labeled as a shell or reverse merger issuer, which makes it much more difficult to raise capital because Rule 144 is unavailable for its investor's resales. Issuers who go public through direct public offerings avoid the shell company and reverse merger stigma. Additionally, issuers who | + | By undertaking a Direct Public Offering, the issuer avoids many of the expenses and risks associated with [http://www.securitieslawyer101.com/reverse-mergers/ reverse merger] transactions, including incomplete and sloppy records, pending lawsuits and other liabilities including securities violations. After a reverse merger with a [http://www.gopublic101.com/Form-10 Form 10] Shell, the private company is forever labeled as a shell or reverse merger issuer, which makes it much more difficult to raise capital because Rule 144 is unavailable for its investor's resales. Issuers who [http://www.gopublic101.com/going-public go public] through direct public offerings avoid the shell company and reverse merger stigma. Additionally, issuers who go public direct have lower costs and the added credibility associated with providing transparency by filing an S-1 registration statement with the SEC. |
For more information about [http://www.securitieslawyer101.com/reverse-mergers/ reverse merger] transactions please visit our blog post at: | For more information about [http://www.securitieslawyer101.com/reverse-mergers/ reverse merger] transactions please visit our blog post at: | ||
http://www.securitieslawyer101.com/reverse-mergers/ | http://www.securitieslawyer101.com/reverse-mergers/ | ||
| − | For further information about this article or how to [http://www.gopublic101.com/ | + | For further information about this article or how to go public, please visit www.securitieslawyer101.com or contact [http://www.gopublic101.com/brenda-hamilton Brenda Hamilton], Securities Attorney at bhamilton@securitieslawyer101.com or 561-416-8956. This memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, [http://www.securitieslawyer101.com/506/ Rule 506] private placement offerings, Regulation A, Rule 504 offerings, Rule 144, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings, please contact Hamilton and Associates Securities Lawyers. Please note that the prior results discussed herein do not guarantee similar outcomes. |
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