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Why Do Companies Use Shell Corporations To Go Public?

Becoming a public company can provide a lot of long-term advantages to help businesses achieve with their ongoing strategies, some advantages include increased company valuation, ability to make acquisitions and mergers with the use of stock, greater access to capital, increased liquidity for company investors and shareholders, pay off debt, as well as the ability of attracting and retaining exceptional employees and more.

When a company decided to go public, there is also a big possibility that its market value will skyrocket. Typically, a private company’s net worth value goes about four to six times its earnings. Meanwhile, a public company’s can go to twenty times its earnings. With the abrupt and considerable improvement in the net worth of a company’s founders and shareholders, it’s no wonder why private companies that are on the verge of bankruptcy or being sold suddenly make the decision to go public, in doing this, they can be sold at a significantly bigger value.

Going public is not simply obtaining greater valuation. Rather, it is also about gaining greater access to capital. The majority of venture capitalists and investment bankers would prefer to invest their money in a public company compared to a private institution. Perhaps, this is because of the stability of the company along with its ability to become transparent in reporting requirements, in addition; its ability to sell stocks to investors at a price that is smaller lesser than the quoted market price, and of course, the liquidity they can assure to investors.

And with a company finalizing its decision to become public, one of the things that are always being considered is the establishment and use of a shell company.

What is A Shell Company?

A shell company is a company that has neither active business operations nor significant assets. A shell company is not necessarily illegitimate or illegal. In fact, they are considered to be very integral part of the going public process for potential startups that seek to go public. Moreover, shell corporations can serve as a way of tax avoidance for legitimate companies.

A Deeper Look At Shell Companies

Shell Companies are often established prior to commencing operation to be able to obtain financial funds. Sometimes, shell corporations are used as a front for the act of tax evasion. Nevertheless, these corporations are legal entities in several countries despite the fact that they have been known to be used in gray or black market activities. Still, a shell company must not be confused with a dummy corporation, which is established for the sake of illegal activity.

Advantages of Going Public Using Shell Corporations

  • It is fast and swift

  • It helps cut cost

  • It keeps you from using your money to produce an acquisition

  • It allows primary investors and founders of the company to exit when there is a problem that is coming easily.

  • It allows the use of stocks of the company to appease towards loyal and committed employees. Thus, reduces the possibility of starting with scratch.

While it is proven that going public requires you to become very transparent about your then-private business, the advantages are still unlimited. Not only does it allow the company valuation to become higher, but it also skyrockets the company’s ability to raise capital for expansion, mergers, as well as acquisitions.


Disclaimer
This page was created for user generated content, a place for the public to upload articles on various topics related to going public, reverse mergers, public shells, raising capital and other financial matters. These articles are posted as basic information for the public. Various authors have written these articles and as the Tiber Creek Corporation has not verified the authenticity of the content, they make no claims or assume any responsibility for the information therein. The statements and opinions expressed here are those of the authors and/or contributors and not necessarily those of the Tiber Creek Corporation.

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