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Learning about reverse mergers in Maryland

When a privately held company combines with a public company that has gone dormant, it is said to have purchased a shell corporation. That purchase turns the private company into a publicly traded company in what is called a reverse merger. This technique expedites the process of going public while the traditional method of turning a private company into a public company through an IPO can take months or years to complete.

While it may be faster to go through a reverse merger instead of an IPO, the cost of the reverse merger may still be steep. It can cost as much as $550,000 to go through the entire process. In addition to the cost, there are regulatory criteria that must be met. Extra criteria may need to be met if the company is doing business as a private equity firm.

Prior to company going public, it may be a good idea to meet with an advisory team to ensure that the merger is done correctly. This team may include an attorney, an accountant and a financial consultant. They may be able to help navigate regulatory processes and make sure that information on an 8-K form is accurate. An 8-K form is generally used to notify the public about the company's name change or if there has been an infusion of capital into the company.

Before buying or selling a business, it may be worthwhile to consult with a business law attorney. An attorney may be able to review documents related to the transaction to increase the odds that they have been completed properly. This may be beneficial as mistakes may invite extra regulatory scrutiny, which may cause problems in the future.

Source: Entrepreneur, "A First Take on Reverse Mergers", December 21, 2014

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