![]() ![]() In addition, under state corporate law, Pubco would be required to offer dissenters rights to those shareholders who vote against the merger. In a reverse triangular merger, the sole shareholder of Sub is Pubco, and thus the shareholder approval is achieved through a board resolution of Pubco authorizing Sub to enter into the reverse merger. To obtain shareholder approval, Pubco would need to make filings with the Securities and Exchange Commission (SEC) and hold an annual meeting, which can be a costly and time-consuming process. State law may requires shareholder approve to enter into a merger or acquisition. The biggest advantage of using a reverse triangular merger is to avoid the need of Pubco to obtain shareholder approval for the reverse merger, which saves time and money. At that point, the Merger Sub dissolves by operation of law and Privco is the surviving entity and becomes a wholly-owned subsidiary of Pubco. On closing, the holders of Privco exchange their Privco shares for shares in Pubco and Merger Sub is merged with and into Privco. With this structure, Pubco incorporates a wholly-owned subsidiary (Merger Sub) in the jurisdiction of Privco. One of the most common types of reverse merger is the reverse triangular merger. Typically, the shareholders of Privco will receive between 90-99% of the outstanding shares of Pubco upon completion of the reverse merger, with the remaining 1-10% consisting of the shareholders of Pubco prior to the merger. With a shorter period of time, this allows management to stay focused on running the company. #TCEL REVERSE MERGER REGISTRATION#Upon closing the reverse merger, Privco becomes a public entity, whereas an IPO requires an often long registration and comment period before effectiveness. There are numerous benefits to reverse mergers, including shorter time process, lower costs, less commitment of management resources, less dilution to the Privco shareholders and an existing shareholder base. In addition, many Privco’s will do a simultaneous private placement in public equity (PIPE) transaction in connection with the reverse merger, which is known as an alternative public offering (APO). Many companies choose to go public by entering into a reverse merger rather than the traditional initial public offering (IPO). For legal purposes, the Pubco entity does not change, only the composition of the shareholders, however, for accounting purposes, Privco is considered the acquiring company and the financial statements of Privco become those of Pubco. As part of the transaction, the shareholders of Privco give up their shares in Privco in exchange for shares of Pubco. ![]() A Reverse merger, or reverse takeover, is the acquisition by a public company (Pubco) of a private company (Privco) pursuant to which the Privco shareholders obtain a controlling interest in Pubco and have the power to appoint the directors and officers of Pubco. ![]()
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