Many people looking to go public through public shell look at a Virgin Form 10 Shell as an attractive alternative to an OTCBB or Pink Sheet Trading Shell. However, a careful analysis of how a Virgin Form 10 Shell Reverse IPO, also called reverse merger with public shell, really works discloses several flaws in pursuing this Going Public alternative.
Although I continue to be amazed me that many companies opt for buying shells to go public, I am confounded by why people would even consider a Virgin Form 10 shell, except in very limited circumstances.
Here’s what I hear from people who ask me about Virgin Form 10 Shells, followed by the truth:
WHAT I HEAR: I need a public shell to go public.
Truth: You don’t need a public shell, reverse merger, reverse IPO or similar transaction to Go Public. You can go public direct without any kind of shell, Virgin Form 10 Shells included.
WHAT I HEAR: I don’t have two years of financial statements so I need an aged Virgin Form 10 Shell to go public.
Truth: You don’t need two years of operating history or financial statements to go public. You can go Public Direct even if you have just started your business and even though you have generated no revenues.
WHAT I HEAR: Virgin Form 10 Shells are much cheaper than OTCBB or Pink Sheet Trading Shell, and
Virgin Form 10 Shells are legitimate because they have an SEC filing and are an SEC reporting company.
Truth: Although these statements are true, they aren’t quite the whole truth. The whole truth is: So what? Virgin Form 10 Shells don’t have a ticker symbol. They aren’t trading.
Before you buy a Virgin Form 10 Shell, remember this: You still have all the work and expense of a Go Public Direct transaction to get a ticker symbol in addition to the expense of buying the Form 10 Shell and completing the merger. You cannot get a ticker symbol after you merge with a Virgin Form 10 shell without the same filing on Form S-1 with the SEC as we do in a Go Public Direct Transaction.
Even worse, your company is forever tainted by the “shell” status, which under recently adopted SEC rules makes it much more difficult for you to raise money because the shares people buy from you in a private placement are much more difficult to resell.
Why not skip the cost and aggravation and just do a Go Public Direct transaction?
I continue to advocate Go Public Direct transactions as the preferred option for private companies desiring to go public in most situations, for simple reasons such as lower cost as well as additional transparency and credibility by becoming an SEC reporting company and additional comfort and security by going through the SEC review process.