Texas residents who own a private company and want to make it public should be prepared for a complicated process. In addition to getting regulatory approvals, an investment bank has to be hired in order to underwrite and distribute shares, a lengthy due diligence process has to be conducted and there can be an extensive waiting period for optimal market conditions to launch the company into the public sector.
However, a reverse merger can be used to make a company public faster. Also known as a reverse takeover, a reverse merger can be beneficial for some private companies that take this avenue. It is important that business owners and investors understand how reverse mergers work as the practice can be a popular tool for scammers and fraudsters.
Typically, the time to complete initial public offerings can range from months to up to a year. With a reverse merger, private companies are able to go public in significantly less time and with reduced accounting and legal costs.
In a reverse merger, a private company simply merges with a smaller company that is already public and on an exchange. The public company can be a shell company created by the investors of the private company.
With a reverse merger, no capital is being raised as is necessary for an initial public offering, which is why they work more quickly than an initial public offering. However, it also means reverse mergers are ideal only for companies that do not require immediate cash.
An attorney who practices business law may help clients navigate the process of certain types of business transactions, including reverse mergers, business dissolutions or initial public offerings. A lawyer may evaluate the condition of a company, taking his or her clients' goals into consideration while working to protect their business interests.