In lieu of a reverse merger, an attractive option for many companies may be a self-filing, which may be completed through the use of Form S-1 or Form 10. A self-filing is often the best choice if you have more time and sufficient shareholders to qualify for the exchange or platform on which you are seeking to trade. But it does take longer than a shell merger and if a financing needs to be done sooner rather than later this may not be ideal.
With an S-1, you go public by registering individual shares that have previously been issued so that they can be publicly resold. When the S-1 is "effective" you can then become a reporting company easily and your stock can trade. With a Form 10 you seek for the company to become subject to the SEC reporting requirements without registering shares. A key issue is how long folks have held their shares. In general if you have sufficient shareholders to trade and all holders who are non affiliates have held shares for at least 6 months, they may be able to trade under Rule 144, an exception to registration.
So one major benefit of the S-1 is that if a company has many shareholders whose shares would not become publicly tradable under Rule 144 if it went public through Form 10, the S-1 effects the removal of all trading restrictions on the shares being registered.
The Form 10 is usually preferable if shares have been held long enough that they do not need to be registered. This is because under SEC rules, Form 10 is automatically effective 60 days after it is filed. An S-1 is not effective until the SEC's comments are fully addressed. With a Form 10 a company is a full reporting company 60 days after filing regardless of the state of the SEC's comments.
Form S-1 and Form 10 offer differing benefits to companies depending on the stage they are at. But with reverse merger regulations erecting greater challenges than ever, a self-filing is more and more attractive. As always, companies should evaluate their situations in context and choose the option that makes more sense for them.
For additional insights on reverse mergers, SPACs, other alternatives to traditional initial public offerings, the small and microcap markets and the economy, visit the
Reverse Merger and SPAC Blog
by David N. Feldman, Esq., Partner of Richardson & Patel LLP.
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