Alternative Venture Finance: Shell Corporations
A shell corporation is a company that
is incorporated but has no significant assets or operations.
These corporations may be formed as an alternative
venture financing mechanism.
Shell company financing works in two
ways. In many cases, the shell corporation is created
from scratch. The purpose of these shells is to raise
money and to get a number of shares outstanding into
the publics hands. In most cases, the shares are sold
in units. That is, the shares are sold as one share
of common stuck plus warrants at the current offering
price.
The empty shell is then merged with
the operating company. The merged companies begin
to report operating results and when the results are
good, existing stockholders exercise their warrants
and provide needed capital into the company.
A second type of shell corporation is
formed when the company seeking capital identifies
an existing shell or inactive public company (IPC)
as a candidate for a reverse acquisition. This typically
occurs after a public company emerges from bankruptcy.
At this time it may be void of assets other than cash.
In fact, the principal asset of the IPC is its often
its public registration and a roster of shareholders
from which new capital may be raised.
Shell corporations are a quick and cost
effective way of taking a company public and raising
public capital. However, typically bridge capital
is required to finance the process and take the company
to a point where investors are interested in exercising
their options.
Since its inception,
Growthink Business Plans has developed over 200
business plans. Growthink clients have collectively
raised over $750 million in financing, launched numerous
new product and service lines and gained competitive
advantage and market share. Growthink has become the
firm of choice for venture capital firms, angel investors,
corporations and entrepreneurs in the know. For more
information please visit http://www
.growthink.com or download our free
Business Plan Guide.
