Tip of the Week: How Long Does it Take? Part II
By David Feldman at 11 February, 2010, 7:49 pm
New potential clients pondering a reverse merger or self-filing always ask, understandably, how long does the process take to get my company public? How long to get trading? How long until real trading commences? I broke this down into three responses. We talked first about how long the process can take simply to be able to declare your company “public.” Now the question is when does any trading begin?
This is pretty straightforward. If you combine with a shell that trades on the Pink Sheets or the OTC Bulletin Board, when you complete the reverse merger, trading simply continues. The same people who had tradable shares before the merger continue to have their shares after and can trade them. The thing is, though, if those people represented maybe 30-40% of the total shares outstanding of the shell (because the balance is typically controlled by a majority shareholder whose shares generally are not tradable), following the transaction they may only represent 1-2% of the total shares outstanding. Thus, the entire “public float” of a company immediately after merging with a trading OTCBB shell is very small indeed. Until more shares become tradable either by being registered with the SEC or applying an exemption from registration, that small float, which rarely trades much at all, will be the company’s entire float. But more about getting to “real” trading in the next installment. But yes, there is technically a trading market immediately after the merger in this situation.
If you start with a Form 10 shell, no trading takes place before or immediately after the reverse merger. Until shares become tradable, through registration or exemption, no trading will start. This usually takes 2-3 months from the merger. This is one of the reasons Form 10 shells are much less expensive to acquire than an OTCBB shell. Put a placeholder on this for the next installment.
In a self-filing, trading does not commence until the SEC approves the company’s registration statement, which usually takes 2-4 months from filing with the SEC. Trading is limited to those whose shares are registered, typically not a large number.
OK, the most important question, when does real trading begin, answered next time.
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