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Is it really a shell company? They're not all shells.
The General Practitioner of Michigan (2011)
  • Tiffany C Walsh
Companies trying to go public on the Over the Counter Bulletin Board (OTC-BB) have many hoops to jump through before they accomplish that goal. There are several strategic approaches a company can take to go public, and the necessary steps are generally defined by the Securities and Exchange Commission (SEC). However, there is one unclear label that can impact the direction of the company once it goes public – whether the company is labeled a “shell company.” Every public company must indicate on the front cover of every quarterly and annual report it files with the SEC whether the company is a shell. Essentially, this is stating the status of the company - whether the company is a nominal assets or operations company. Determining the company status as a shell is important because it establishes the procedure and guidelines the company will subsequently have to follow. Typically, the procedure and guidelines are tougher on zero operation companies than structurally and profitably sound ones. Therefore, most companies will try to avoid being classified as a shell company. Furthermore, the classification of a shell has a negative connotation that implies a fake company and creates an undue hardship on legitimate, early-stage companies trying to go public. This ultimately triggers an important issue: what are the specific characteristics of a shell company? Unfortunately, there are no clear objective guidelines as to what constitutes a shell for purposes of seeking a listing on the OTC-BB. The definition is so subjective that it makes it virtually impossible for some companies (especially developmental-stage companies) to know if they should be calling themselves shells. Because this step has such a significant impact on the future of these companies, the SEC should narrow and more clearly define the definition of a shell so legitimate companies with potential will not have to distinguish themselves under the restrictive, disparaging label.
  • OTC-BB,
  • Shell Companies,
  • Reverse Merger,
  • S-1,
  • Form 10
Publication Date
January, 2011
Citation Information
Tiffany C Walsh. "Is it really a shell company? They're not all shells." The General Practitioner of Michigan Vol. 35 Iss. 1 (2011)
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