Tip of the Week: How Long Does it Take? Part I
By David Feldman at 9 February, 2010, 7:21 am
New potential clients pondering a reverse merger or self-filing always ask, understandably, how long does the process take to get my company public? How long to get trading? How long until real trading commences? I’ve decided to break this down into three responses. Let’s talk first about how long the process can take simply to be able to declare your company “public.”
Of course, I give my typical lawyer answer: it depends. A reverse merger with a full SEC reporting, OTCBB trading shell company requires due diligence in both directions, negotiation of a merger agreement, an SEC filing of Schedule 14f-1 at least 10 days before closing, the preparation of a “super” Form 8-K with full disclosure and audited financial statements to be filed right after closing and “insider” filings for affiliates and large shareholders. There are a number of moving parts, including the auditors. I tell clients to expect this process to take 2-3 months, but I have done it in as fast as a month. Truthfully it can be done even faster than that if the company’s lawyers are already very familiar with the company and the audit had already been done.
A reverse merger with a full SEC reporting but non trading Form 10 shell can be done a little faster, because the process of reviewing shell due diligence is much speedier than tracking the history of a former operating company that becomes an OTCBB shell. So it might be possible to shave as much as a week to the timing in this situation.
If you choose a non-reporting shell on the Pink Sheets, the filing of the 14f-1 and “super” 8-K is not required, nor do audits have to be completed, and no insider filings are required. While some investors hesitate to invest in a Pink Sheet shell merger, no question it can be done more quickly than a merger with a reporting shell. However, due diligence on Pink Sheet shells can be more tricky than reporting shells because no public information is typically available. But a Pink Sheet shell merger can be done as quickly as a month, but more typically 1-2 months.
In a self-filing not involving a shell, the process usually takes longer. A full registration is submitted to the SEC and must be approved by them before the company is public. The other options above avoid any involvement of the regulators prior to being public. I have completed self-filings in as quickly as two months, but 3-6 months is the range I usually estimate for clients. There are certain advantages to self-filings, and if the company can wait the additional time to be public, it may be worth considering.
All the above does not take into account sources of delay other than mentioned. If the audit is not done, or the company is not as helpful in providing information for the super 8-K, or if shell counsel is not particularly responsive, delays could be worse. In a self-filing, the SEC may question some financial issues which the auditors strongly disagree with. The back and forth with the SEC on this can cause real delay.
Next - how long does it take until trading begins?
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