What Are Reverse Mergers?

A reverse merger, also known as a reverse takeover, is a going public strategy that involves a transaction between two companies. One is a private company and the other one, a public company that already went through the SEC (Securities and Exchange Commission) review process and received a stock symbol. However, the publicly held company, for whatever reason, decided to stop its business activities and has little or no assets. The public company is usually called a public shell company, because that's all that's left of the publicly held company. 

Nonetheless, the public shell company's corporate structure, together with its ability to trade, has value and can help in raising capital. The public shell company can be used to merge with a private company, since much of the work of creating the public company has already been done in the past.

One of the major reasons that reverse mergers with public shell corporations - also known as public shell companies - have been used as an IPO going public alternative, is because the going public process was quick, and the merged company had many months from the reverse merger date to provide new financial information. However, new SEC regulations have made the reverse merger process much arduous for private companies that wish to enter the stock market and raise capital, read on.

The new SEC reverse merger rules:
The SEC, in an effort to afford greater company transparency to the investing public, decided to change the time given to new reverse mergers companies to provide financial statements to the SEC. In a new ruling, the commission decided to shorten the allowed time to only 4 days after the reverse merger!

What is the meaning of the above SEC rule? 
It means that the newly merged public company has a limited amount of time to provide new financials and other information that is almost the same as providing a new registration statement! The reason for the new SEC rule is to provide better information to investors.