Reverse Mergers

A local business that offers website building and graphic design work, and that is funded by the savings of the owner and a few investments by close family and friends is usually what we classify as a private company. This means that while it is possible to invest in the company if you know the owner, you are unable to use those shares as currency in any type of formal market.

Also important to your understanding of reverse mergers is the definition of a public company. Many people think of public companies as the ones that are bigger, more profitable and usually international corporations, however, size really has nothing to do with the fact that your company is public or private. Instead, the term public company simply refers the fact that a certain company has taken the necessary steps to be able to buy, sell and trade their securities with the general public on one of the recognized exchanges or bulletin boards.

If a public company is showing little profit and limited cash assets wants to revitalize their business, they may consider reverse mergers with a smaller private company that is experiencing successful business. Through this process, the public company merges with the private company, taking over their business and usually changing their name. At the same time, the private company gets to enjoy all the benefits of going public without necessarily having to prove their financial stability or performance history. This can be a useful tool for all parties involved, but of course you always have to exercise caution. If you'd like to learn more about these types of mergers, visit www.tcc5.com