Business legal services in Silicon Valley

Reverse Business Merger is an Alternative Way to Obtain Funding

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Mergers & Acquisitions on Monday, May 5, 2014.

Startup companies have many challenges to overcome when starting a new business. One of the most common and significant challenges facing a startup is obtaining venture capital in California or in any other state. Many times there are more startups looking for funding than there are venture capital and Angel investors available. However, one unorthodox method of obtaining capital, which has gained some popularity recently, is using a business merger to garner funding.

However, startups looking to go this route are engaging in a specific type of merger known as a reverse merger. This type of merger is usually utilized in order to avoid the process and expenses related to an Initial Public Offering (IPO). Usually, a dormant shell company is chosen for this type of transaction. However, there are many shell companies that have less than pristine histories; therefore, it is important to properly research a shell company’s past in order to avoid any unforeseen liabilities.

Also, many public shell companies that are ready to be sold are not listed by NASDAQ, but instead are traded on less prestigious avenues. For example, the OTC Bulletin Board is a common place where shell companies are listed instead of the NASDAQ. Although these companies can be renamed and moved to the NASDAQ, this may end up negating any savings on expenses and time, which would be the original intent of a reverse merger.

Additionally, one must be sure to follow all proper rules and regulations when completing a business merger of any kind in California or any other state. This means having full knowledge of applicable laws. Incorporating a compliance strategy into one’s business plan will help to avoid future lawsuits and criminal charges, which would be highly detrimental to any business.

Source: Forbes, “Is A Reverse Merger The Way To Fund Your Startup?“, Martin Zwilling, May 2, 2014


Related Post

Resolving Employee Disputes Before You are Sued

05/17/14

Preventing employee lawsuits and other legal claims is more challenging than you might think for a business. When your company is experiencing a staff problem such as an employee who continually comes in late, frequ

LEARN MORE >

Buying a California Business

05/17/14

Get Advice from an Experienced Business Lawyer Buying an existing company is a great way to enter the market with an established customer base. You can obtain financing more easily, benefit operationally from exi

LEARN MORE >

Legal Considerations Before Signing a Commercial Lease

05/17/14

Most entrepreneurs do not understand that in a commercial lease the leasing agreement is whatever the parties decide. There is considerably less legal protection for a business in a commercial lease than in common r

LEARN MORE >

© 2019 THE LAW OFFICE OF LYNNETTE ARIATHURAI            SITEMAP               DISCLAIMER

Serving Businesses and Start Ups in the Greater Bay Area including Fremont, Hayward, Union City, Castro Valley, Milpitas, and Newark, CA.

The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. Contacting us does not create an attorney-client relationship.