Issuers seeking to raise capital often attempt to go public using a reverse merger with a public shell. Blank Check Companies which file Form 10 Registration Statements ("Form 10 Shells") are being denied ticker symbols.
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Using Form 10 In Going Public Transactions
1. using form 10 in going
Many issuers seeking to raise capital often attempt to go public using a reverse merger with a
public shell. Blank Check Companies which file Form 10 Registration Statements ("Form 10
Shells") are being marketed as a method for private companies to obtain public company status.
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 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 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.
A direct public offering involves the filing of a registration statement typically on Form S-1 with the
Securities and Exchange Commission ("SEC") and once effective, a sponsoring market maker will
file a Form 211 on the issuer's behalf with the Financial Industry Regulatory Authority ("FINRA").
What is a Form 10?
The SEC provides various forms of registration statements for registering securities offerings
which vary based upon the characteristics of the issuer and of the particular type of offering.
A Form S-1 Registration under the Securities Act of 1933, as amended (the "Securities Act") is
the most commonly used form for a Securities Act registration statement. All companies qualify to
register securities on Form S-1.
A company can also file a registration statement under the Securities Exchange Act of 1934 (the
"Exchange Act") to register an entire class of securities, while a Securities Act registration
registers a certain number of a particular class of securities.
Unlike a registration statement on Form S-1, a Form 10 also does not affect the tradability of
securities. After a Form 10 registration statement becomes effective, restricted securities remain
2. restricted and unrestricted securities remain unrestricted.
When is Form 10 Registration Required?
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.
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.
Upon filing of a Form 10, the SEC may render comments to the disclosures. Regardless of
whether such comments have been answered satisfactorily, a Form 10 registration statement
automatically becomes effective sixty (60) days after its initial filing. This effectiveness causes the
issuer to become subject to the SEC's periodic reporting requirements.
Periodic Reporting
Once a company has a security registered under the Exchange Act or the Securities Act, it is
required to file with the SEC annual, quarterly, and current reports. An Issuer with securities
registered under the Exchange Act must additionally comply with SEC proxy rules and its
directors, officers, and holders of ten percent or more of its outstanding securities must comply
with the beneficial ownership reporting requirements and the issuer's securities become subject to
the short-swing profit rules under Section 16 of the Exchange Act.
Getting a Ticker and Trading
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
3. 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").
The Solution
By undertaking a Direct Public Offering, the issuer avoids many of the expenses and risks
associated with 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 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 reverse merger transactions please visit our blog post at:
http://www.securitieslawyer101.com/reverse-mergers/
For further information about this article or how to go public, please visit
www.securitieslawyer101.com or contact 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,
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.
Many issuers seeking to raise capital often attempt to go public using a reverse merger with a
public shell. Blank Check Companies which file Form 10 Registration Statements ("Form 10
Shells") are being marketed as a method for private companies to obtain public company status.
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 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 Form 10 Information in a "Super 8-K" which is triggered by the reverse
merger.
4. 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.
A direct public offering involves the filing of a registration statement typically on Form S-1 with the
Securities and Exchange Commission ("SEC") and once effective, a sponsoring market maker will
file a Form 211 on the issuer's behalf with the Financial Industry Regulatory Authority ("FINRA").
What is a Form 10?
The SEC provides various forms of registration statements for registering securities offerings
which vary based upon the characteristics of the issuer and of the particular type of offering.
A Form S-1 Registration under the Securities Act of 1933, as amended (the "Securities Act") is
the most commonly used form for a Securities Act registration statement. All companies qualify to
register securities on Form S-1.
A company can also file a registration statement under the Securities Exchange Act of 1934 (the
"Exchange Act") to register an entire class of securities, while a Securities Act registration
registers a certain number of a particular class of securities.
Unlike a registration statement on Form S-1, a Form 10 also does not affect the tradability of
securities. After a Form 10 registration statement becomes effective, restricted securities remain
restricted and unrestricted securities remain unrestricted.
When is Form 10 Registration Required?
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.
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
5. executive compensation as well as its audited financial statements.
Upon filing of a Form 10, the SEC may render comments to the disclosures. Regardless of
whether such comments have been answered satisfactorily, a Form 10 registration statement
automatically becomes effective sixty (60) days after its initial filing. This effectiveness causes the
issuer to become subject to the SEC's periodic reporting requirements.
Periodic Reporting
Once a company has a security registered under the Exchange Act or the Securities Act, it is
required to file with the SEC annual, quarterly, and current reports. An Issuer with securities
registered under the Exchange Act must additionally comply with SEC proxy rules and its
directors, officers, and holders of ten percent or more of its outstanding securities must comply
with the beneficial ownership reporting requirements and the issuer's securities become subject to
the short-swing profit rules under Section 16 of the Exchange Act.
Getting a Ticker and Trading
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").
The Solution
By undertaking a Direct Public Offering, the issuer avoids many of the expenses and risks
associated with 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 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 reverse merger transactions please visit our blog post at:
6. http://www.gopublic101.com/reverse-mergers-myths/
For further information about this article or how to go public, please visit
www.securitieslawyer101.com or contact 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,
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.
