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by Laura Anthony, Esq.

OTCBB Reporting Requirements Enable Successful Reverse Mergers

Companies subject to the reporting requirements of the Securities Exchange Act of 1934 (amended to the “Exchange Act”), without current business operations, and trading on the NASDAQ Over the Counter Bulletin Board (“OTCBB”), commonly known as Bulletin Board Shells, have become the vehicle of choice for private companies seeking to go public through a reverse merger.

Although the domestic economy has slowed, reverse mergers still flourish, and Chinese-based companies in particular have taken the lead in reverse mergers with Bulletin Board Shells. As old sectors slow, new sectors such as biofuels, health supplements, and agricultural science have risen to lead the charge into the public arena.

SEC Reporting Requirements Make Due Diligence Practical

Bulletin Board Shells have become the vehicle of choice for private companies seeking public status. This is due in part to increasing industry pressure for public companies to maintain total disclosure of their financial condition and operations.

Bulletin Board Shells and OTCBB Companies must prepare and file detailed periodic, quarterly and annual filings with the SEC. Also, Bulletin Board Shells are generally subject to the proxy rules of the Exchange Act, requiring certain SEC filings and shareholder voting for amendments to the articles of incorporation, including reverse splits and increases in capitalization.

Due to their detailed reporting requirements, Bulletin Board Shells actually enable the reverse merger process. With the assistance of an experienced securities attorney, the private company going public can effectively complete a thorough due diligence of the shell they are seeking to merge into. During the due diligence process, outstanding liabilities, pending or threatened lawsuits, disputes with auditors and other important elements pertaining to the public shell are revealed.

OTCBB Reporting Requirements Deter Fraud

Specifically, if an entity intended to become reporting in the future, they can be assured that historical records are available to meet SEC requirements for the filing of a registration statement. Moreover, a reporting Bulletin Board Shell is less susceptible to market manipulation, the concealment of beneficial ownership of key shareholders, and other potentially fraudulent and unethical activities.

The other important feature that lends value to trading Bulletin Board Shells is the fact that they are compliant with SEC Rule 15c2-11, making the companies “piggy back” qualified for market makers. SEC Rule 15c2-11 requires a market maker to have on file certain due diligence information regarding a company prior to quoting that company’s securities. The market maker submits such information to the Financial Industry Regulation Authority (FINRA) for review and approval prior to beginning quotation of such securities.

The Author

Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
LAnthony@LegalAndCompliance.com

Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges including NASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the OTC Market’s top source for industry news, and the producer and host of LawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.

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