The Problems with Public Shells

For many years now, I’ve consistently advocated that most companies that want to go public should use the Go Public Direct process rather than a reverse merger with a public shell.

Here’s why:

• Many public shells have nasty skeletons in the closet that will come out to haunt you after you close the reverse merger.
• Many public shells have shareholders and promoters who will dump all their shares into the market after the reverse merger closes, killing your stock price. And leaving you with angry investors and shareholders.

Why do people do buy these shells? I believe it’s because they think a shell deal is better than a go public transaction. I’ll tell you why that’s not true:

Even though a Bulletin Board Shell costs at least $200,000 more than a Go Public Direct Transaction, people think a Bulletin Board Trading Shell with a ticker symbol is a faster and more certain way to go public. But it’s not. I’ve proven that’s not true.

Pink Sheet Shells at a lower cost than Bulletin Board Shells seem like an attractive alternative. But they are not. They are still more expensive than a Go Public Direct transaction. You only end up on the Pink Sheets. And you may have to stay there because you’ve inherited other problems not found in Bulletin Board Shells. Bogus stock sales. Years of unfilled SEC reports. Or worse – Particularly under new SEC and FINRA Rules. Be sure to read our Pink Sheet Shell Warning before you buy a Pink Sheet Shell.

Virgin or Form 10 Shells seem like a great deal.  They’re cheap. They do have a purpose.  But make sure you ask a competent SEC attorney before you buy one.  Some people may be misrepresenting what these shells can do for you and may not fully explain what types of transactions they are actually suited for.

Remember:   After you pay for the shell, you still have all the work and expense of a Go Public Direct transaction to get a ticker symbol.  

Another common scare tactic used to promote Public Shell transactions is to tell a potential shell buyer that they should avoid a Go Public Direct transaction because the SEC will review the filing and the SEC may not clear the filing meaning you don’t get a Ticker Symbol.  That’s not true either.

Many people do not understand and some actually fear the SEC review process. So here are the facts.

• The SEC is not like the FTC.
• The FTC reviews mergers, examines and makes subjective decisions the merits of the mergers and sometimes blocks the mergers from going through.
• The SEC reviews registration statement but does not make any subjective on the merits of your filing. They review to assure that all of the information required by the rules and regulations is included. The SEC does not block registration statements.

There are many things the SEC does not care about in the process. You may have many “Will the SEC care if …” questions, such as:

Will the SEC care if:

• Your company is a start-up, early development stage company?
  →NO. The SEC doesn’t care about your stage of development as long as it’s fully and accurately disclosed.

• Your company has no or little revenues?
  →NO. The SEC doesn’t care about your revenues or other aspects of your financial condition as long as it’s fully and accurately disclosed.

• Your company does not have the money on hand to implement your business plan?
  →NO. The SEC doesn’t care about your financial ability to implement your business plan as long as it’s fully and accurately disclosed and you actually intend to implement the business plan described in your filing.

• Either you or one of your officers or directors has had a personal or business bankruptcy?
  →NO. But it must be disclosed.

• Your stock is priced at $.01 or $10.00 per share?
  →NO. But offerings at $.01 cause the SEC staff to pay more attention to your filing.

• You have a big firm or small firm advising me or auditing?
  →NO. The SEC does not grant favors based upon the size of the firm representing you in the filing. As long as the auditor is a PCAOB member, the SEC doesn’t grant any favors to large vs. small audit firms.

As I told you: Do not buy any kind of shell, no matter how good it seems, if you don’t get funding from a reliable source when the merger closes.

If you believe you have found the perfect shell and you don’t need us, call me and give me the details of any proposed shell deal that’s being pitched to you. In less than 15 minutes, I’ll prove that you’re much better off hiring us and Going Public Direct.