Rule 144 and Pink Sheet Shells; Selling Shares Post Merger
One of the most common inquiries received by securities attorneys today involves Issuers wanting to know when they and their shareholders can sell their shares on the open market following a merger with a Pink Sheet shell. In many cases, the answer they get is not the answer they want; twelve months after the Pink Sheet Company becomes a fully reporting entity.
If a private entity has merged with a Pink Sheet shell under the assumption that they can avoid the Securities and Exchange Commission (SEC) reporting requirements, this revelation is devastating. As a result of the amendments to Rule 144 and Rule 145, enacted in February, 2009, private companies that wish to go public on the Pink Sheets are advised to do so directly, and not through a reverse merger with a shell company.
Rule 144
Technically Rule 144 provides a safe harbor from the definition of the term “underwriter” such that a selling shareholder may utilize the exemption
Necessity of Background Searches on Officers and Directors as Part of Due Diligence Prior to a Reverse Merger or IPO
If you are a private company looking to go public on the OTCBB, securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel. Ms. Anthony counsels private and small public companies nationwide regarding reverse mergers, corporate transactions and all aspects of securities law.
Many private companies go public either through a reverse merger with a public shell or initial public offering (IPO) process. A reverse merger allows a private company to go public by purchasing a controlling percentage of shares of a public shell company and merging the private company into the shell. An initial public offering is where the private company files a registration statement with the Securities and Exchange Commission and once the registration statement is effective proceeds to sell stock either directly (a DPO) or more commonly through an underwriter.
It is very important that management of public shells and underwriters conduct a background check on the private company’s officers and directors prior to embarking
