Reverse acquisition process
The following flow chart mainly lists the operation sequence and company structure of reverse takeover. Among them, whether to carry out private financing depends on the situation. Please refer to the detailed process for the specific steps of reverse takeover.
Image source: Interactive Encyclopedia
Detailed introduction of reverse acquisition process
1. Select an intermediary company
Intermediary companies play a key role in reverse takeover. Usually these companies are familiar with the capital market in North America and have a wide network of contacts. They can help private enterprises in China to formulate reverse acquisition strategies, and help China enterprises to find shell companies, securities brokerage companies, accounting firms, law firms and other related institutions in the North American capital market. There are many types of intermediary companies, some are professional financial consulting companies, some are private investment companies or funds. In the past two years, more and more American companies have landed in North China through reverse acquisition, and more and more intermediary companies are engaged in these businesses. What needs to be reminded here is that China companies preparing for reverse acquisition in North America should carefully examine the capabilities of these intermediary companies, clearly stipulate the rights and obligations of both parties in the contract, and avoid possible disputes in the future.
2. Selection principle of shell resources
The most important thing to choose a shell company is to choose some cleaner shells. The so-called clean shell refers to those shell companies that have no debts, a clear business history and no legal disputes. At the same time, the shell company has been registered on time in accordance with the requirements of the US Securities Law, and its listing qualification remains unchanged. In addition, the shell company needs to have enough "public shares" and "public shareholders". Considering the future listing and financing plan, the shell company should have at least 300 shareholders holding more than 100 shares. After buying such a shell company, you don't need to spend too much time and energy to clean up and clean up. Although such shell companies are generally more expensive, they can save a lot of trouble.
When choosing a shell company, we must pay more attention to those companies with low bids. These companies often have long-term business stagnation, and various declarations and audits have not been completed. After buying such a company, it will take a long time to re-register with the SEC. The process may not be much different from applying for listing.
Generally, when buying a shell company, the buyer will send lawyers and accountants to conduct a prudent investigation, and the shell company will also conduct a reverse prudent investigation. The shell company shall provide the buyer with legal proof that the shares of the shell company can be traded, and the issuance of additional shares also conforms to the provisions of Article 144 of the Securities Law.
3. Types of shell resources
Shell resources can be roughly divided into four categories, including:
(1) Declare the trading shell
Shell companies regularly report to the SEC that at least one market maker is buying and selling company shares, which is the shell for reporting and trading. This shell company can be listed and traded about three months after the acquisition is completed.
(2) Declared but not traded.
Such shell companies regularly submit declarations to the SEC, but no market makers buy or sell the company's shares. This shell company can be listed and traded in about 4-6 months after the completion of the acquisition, and the price is second only to the above-mentioned first-class companies.
(3) undeclared but traded shells.
This kind of undeclared but traded shell mostly exists in the lower-level OTC market, for example, this type of shell company exists in the powder list market we mentioned earlier. It may take half a year to buy such a shell company to go public.
(4) There is no shell for declaration and transaction.
It will be cheaper to buy a shell company that has not declared a transaction, but it needs more aftermath. Generally, it will not be listed until September to 65438+February.
4. Business nature of shell companies
(1) bankrupt shell companies
Bankrupt shell companies are listed companies that have been ruled bankrupt by the court. According to the provisions of the bankruptcy law of the United States, such bankrupt companies can be exempted from all debts and lawsuits, thus solving the company's debts and legal disputes once and for all. Although listed companies have declared bankruptcy, their listing qualifications are still there, and there may be a large number of public shareholders in the company. So such a company has become an ideal shell company.
(2) Stop the service shell
Compared with the bankrupt shell company, the closed shell has not been exempted from debt and legal liability by the court. For example, some resource companies are out of business because of the exhaustion of resource projects, the company is not insolvent, and the company's listing qualification is still retained.
(3) Blank check shell companies
A blank check shell company is a shell company specially designed for people to buy. At the beginning of its establishment, such companies should explain to the SEC that they are not engaged in any business. In the late 1990s, such companies were very popular. Later, due to the enhanced supervision of the SEC, the number of such companies decreased a lot.
(4) Remove the shell
Dismantling means that a listed company splits part of its own business, so that the split company can also qualify for listing. Because this company still has business operations, there may be corresponding debts or lawsuits, but it will help the listed company to raise its share price in the future.
(5) Shell 504 and Shell 4 19
Shell 504 is a company established after issuing raised funds according to the provisions of the US Securities Law on direct public offering. A shell company listed in OTCBB after submitting relevant registration documents to the SEC. Direct public offering is a way of public offering with the rise of the Internet. Issuers directly use the internet to publicly issue shares without going through intermediate links such as investment banks or brokers. The scale of funds raised by this issuance method is small, generally below $5 million. The cause of 4 19 shell company is very similar to the shell company with empty check mentioned in the last article.
5. Corporate restructuring and establishment of offshore companies.
After selecting a shell company, it is usually necessary to reorganize the China company. The principles of reorganization include clarifying property rights, balancing interests, reducing association, optimizing allocation and minimizing costs. The goal is to meet the requirements of relevant securities laws and regulations in North America, and at the same time lay the foundation for the company to further raise funds in the North American capital market in the future.
From the experience of several successful reverse acquisitions by American companies in North China, it is common to set up offshore companies. The establishment of offshore companies can create convenience for China companies to enter the North American capital market, and at the same time, it can avoid some restrictions of relevant policies and regulations in China. However, it should be emphasized that China companies should abide by the policies and regulations of China and relevant countries in North America when making reverse acquisitions in North America. Offshore companies are established to facilitate the listing and financing of companies in North America, not to transfer assets, and the original state-owned assets should not be turned into private property by this means. This kind of behavior should not only be investigated by China law, but also be unacceptable by North American law.
At present, the famous overseas registration places in the world are British Virgin Islands, Cayman Islands and Bermuda. These overseas registration places provide many conveniences and services to attract foreign companies to register here, including: complete confidentiality, anonymity, and no need to declare annual reports; Tax exemption can delay and reduce the tax burden; No foreign exchange control, etc. In fact, these overseas registration places are very popular in China, because they are an important part of China's curve listing. Brilliance China is one of the earliest China companies listed on NYSE, and it is a holding company registered in Mu Bai University. Since then, overseas Chinese have taken the same approach. Usually, we call this method a shell list. Companies registered in Cayman Islands and Bermuda can apply for listing in Hong Kong and North America. The Cayman Islands has a developed financial industry and is an ideal place for various financial institutions and investment funds. The Virgin Islands is currently the largest offshore company registration place in the world. According to relevant statistics, there are 290,000 foreign companies registered here.
Companies registered in Cayman and Bermuda can bring a lot of convenience for listing in North America, but it may have some adverse effects on the company image. Corporate integrity has always been the most concerned issue for institutional investors and individual investors in North China. These companies from tax havens are inevitably disturbing. For example, after Brilliance Auto was listed in the United States, it was difficult to raise funds in the later period, and finally it went back to Hong Kong to refinance. Therefore, if conditions permit, China companies can also consider entering the North American capital market as "citizens".
6. Tax considerations in reverse takeover.
If the shell company itself still has certain assets, then tax factors should be taken into account in the process of buying shells. For example, if the book value of a company's assets is $654.38+$0 million, the market value is $5 million. According to American tax law, the seller has to pay the corresponding income tax or capital gains tax. However, after purchasing these assets, the buyer's depreciation is still based on the book value of $654.38+$00,000, so it is impossible to obtain the tax deduction provided by depreciation. In practice, buyers and sellers should adjust the book value of the acquired assets according to the relevant provisions of the US tax law to keep it consistent with the market value. In this way, both sides can get tax incentives.
7. Market maker
Market makers play a key role in the American stock market. The number of market makers is also one of Nasdaq's requirements for companies applying for listing. Companies listed on OTCBB mainly rely on market makers to provide quotations. If these companies want to apply for listing on higher-level exchanges in the future, they must get enough support from market makers.
8. Financing mode of 8.OTCBB after listing
For China companies, listing in OTCBB only stepped into the North American capital market, and did not get more financial support. Therefore, it is particularly important to understand the financing methods of OTCBB after listing. In fact, listing and financing don't have to be in order. Many American companies make reverse acquisitions in North China and raise funds at the same time. In terms of financing methods, at present, capital private placement is mostly adopted. When we introduced the financing tools in the North American capital market, we once introduced private equity. Because it belongs to a financing method that is exempt from the approval of the US Securities and Exchange Commission, and its supervision has been relaxed recently, it has been adopted by many China. Other financing methods that are exempt from SEC review include in-state issuance and small direct issuance, but they are not common.
Issuing new shares and issuing restricted shares to the public are also financing methods that companies can consider. However, these financing needs to apply for the approval of the SEC and hire intermediaries such as investment banks, so the cost is high. The lawyer's fee, filing fee and audit fee of IPO are about $654.38 +0.5 million, and the underwriter's commission is fixed, but overall, the cost of IPO will definitely be lower than that of IPO. The cost of issuing restricted shares may range from $400,000 to $6,543,800+0,000.
Since the company's shares can be circulated after listing in OTCBB, it will be more attractive to venture funds and private equity funds, so China companies can also consider attracting direct investment from funds. In principle, China companies can also apply for short-term financing or issue bonds in financial institutions, but it may be difficult for China companies that have just listed in North America.
Whether China Company can successfully carry out financing fundamentally depends on the financial performance of the company, followed by the liquidity of the company's shares. Although it has been pointed out that the financing ability of companies listed on OTCBB is poor, as long as the growth potential of companies can attract investors, successful financing is not impossible.
9. Post-listing disclosure and maintenance
Information disclosure is the basis of securities management, and the core of the Securities Law promulgated by 1933 is information disclosure in the primary securities market. 1982, in order to simplify and clarify the management of information disclosure, the SEC formulated a comprehensive information disclosure system, which is the standard that American listed companies abide by at present. Disclosure and maintenance after listing is very important for China companies to continue financing in the future, and professional companies providing investor relations services and public relations services here can provide great help. These financial public relations companies are familiar with the disclosure principles of North American capital markets and have extensive contacts among institutional investors and individual investors. Financial public relations companies can design different solutions for investor relations and public relations. With their help, China Company can expand its popularity and improve its image in a short time. Judging from the actual situation of North American capital market, some large companies have set up special departments to be responsible for investor relations, while small and medium-sized companies entrust these businesses to special financial public relations companies.
10, SEC's supervision on reverse takeover
With the active reverse M&A activities of OTCBB, SEC is constantly improving the management standards of this OTC system. These standards regulated by Taiwan Province Customs include: the auditor who is required to sign the audit report must be a member of the American Public Committee; After the successful listing of the enterprise; It is necessary to provide 8K announcements to the SEC within 5 days, which shortens the reporting time limit; SEC also strengthened the financial report review of shell-buying enterprises in OTCBB market. It is believed that the SEC will continue to strengthen the supervision of OTCBB and reverse takeover in the future.