Public Shell Companies

What is a public shell?

The SEC has two definitions that apply to shell companies:
  • Shell Company
  • Blank Check Company
Shell Company
A “shell company” is any company that has:
  • no or nominal operations and
  • either
    • no or nominal assets or
    • assets consisting solely of any amount of cash and cash equivalents and nominal other assets.
The SEC does not define the term “nominal.” However, note that the definition does not refer to revenues but to operations. Thus the SEC has later said that this definition is not intended to capture a “startup company,” or, in other words, a company with a limited operating history, as it believes that such a company does not meet the condition of having “no or nominal operations.”
Blank Check Company
A blank check company is a development stage company that:
  • has no specific business plan or purpose or
  • has indicated its business plan is to engage in a merger or acquisition with an unidentified company or companies, other entity, or person.
What are the different types of public shells?
There are three basic kinds of Public Shells:
  • OTCBB Reporting/Trading Shell
    • This Shell files reports with the SEC under the 1934 “Filing Reports” Act.
    • This Shell trades on the Over-the-Counter Bulletin Board.
  • Pink Sheet Non-Reporting/Trading Shell
    • This Shell does not file reports with the SEC under the 1934 “Filing Reports” Act, although some Pink Sheet Shells at one time were OTCBB Shells that ceased filing reports with the SEC.
    • This Shell trades on the Pink Sheets.

      • Make sure you read the true story at the end of this section.
  • Form 10 Virgin Non-Reporting/Non-Trading Shell
    • This Shell does file reports with the SEC under the 1934 “Filing Reports” Act.
    • This Shell does not trade either on the OTCBB or the Pink Sheets.
  • Special Purpose Acquisition Companies [SPAC’s]
    • Generally the SEC does not allow manufactured Public Shells to trade under Rule 419. However, if the Public Shell has over $5,000,000 in net assets and a stock price in excess of the $5.00 limit under Penny Stock Rules, this type of Public Shell can trade.

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