A "Reverse Merger" is a method by which a private company can go public by merging with a public company. In a reverse merger a private company merges with a public shell company that usually has no assets or liabilities.
After the reverse merger the private company would retain most of the public shell shares and would be trading under the name of the private company prior to the merger. The board members of the trading shell company would resign and the private company would appoint their own board of directors.
The biggest advantage of a private company doing a reverse merger with a public company is the time it takes to get to public markets. If a private company goes public by way of a reverse merger they can do so in usually two weeks versus 2 month if doing it from scratch.
There are basically two distinctly different types of "public" shell companies being used to do reverse mergers "Trading and Reporting" corporations and "Virgin" corporations.
Learn the truth about Reverse Mergers and Public Shells
When doing a reverse merger with a public shell it can be very expensive and there are several things you must be aware of.
There are several types of public shells which are all very expensive. They are also usually loaded with liabilities. They usually have 100 or more shareholders and a lot of shares in the float when the stock price goes up these 100 shareholders inevitably sell the stock and the price declines. This is far more expensive than the up front price paid. This point is absolutely critical. If you are seriously considering becoming a public company it is very important to understand the concept of the public float.
There are also non trading public shell companies. These reporting companies usually have 1 or 2 shareholders and they are virtually useless. They are a gimmick used by stock promoters to sell you something. It actually takes longer than if you were to just take your own company public from scratch.
Many people think you need to do a reverse merger with a public shell to go public, which is incorrect. Others think that doing a reverse merger with a public shell company is faster. This is another misconception. For example, to start trading on the Pink Sheets is very fast. A company can always move up to the NASD OTC Bulletin Board or NASDAQ later.