Tag Archives: reverse merger attorney

Rule 144 Holding Period for Stock-for-Stock Acquisitions

Reverse Mergers of OTC Markets microcap companies are typically achieved using a stock-for-stock exchange under which the public company issues restricted stock in exchange for the private stock of the company being “vended in.”

Holding Period of Private Company Stock Does Not Tack under Rule 144

Shareholders in the private company may have already held their private stock for many years prior to the reverse merger.  Thus these private shareholders are often under the mistaken but intuitive impression that they can tack their ownership of the stock in the private company prior to the reverse merger in order to meet the holding period requirement under Under Rule 144.   However, this is not true.

Rule 144 Holding Period Starts Upon the Closing of the Share for Share Exchange

In a stock-for-stock acquisition or reverse merger achieved via a share exchange, the date of closing determines when the Rule 144 holding period starts.  Why?  Because the shareholders receiving OTC Bulletin Board or OTC Markets Pink Sheet public company shares are not at risk until the transaction actually closes and the public company’s shares are actually issued in exchange for the private company’s shares.

The Date of the Merger Agreement Does Start the Rule 144 Holding Period

For example, if the closing of the reverse merger will be delayed until the private company’s financials are audited, then the date of the Merger Agreement or the 8-K announcing the proposed Merger will not determine the start of the Rule 144 holding period.

When the closing is delayed for any reason, the Rule 144 holding period for those receiving the public company’s stock will not start until the reverse merger closes because the recipients will not be at economic risk until that time.

Rule 144 Securities Attorney Opinions by Matheau J. W. Stout, Esq.

Rule 144 has many nuances and experienced securities attorneys issue legal opinions only after a thorough review of all shareholder documents and Issuer filings.   Shareholders seeking Rule 144 or Section 4(a)(1) legal opinions can email documents to OTC securities lawyer Matt Stout at mstout@otclawyers.com or call (410) 429-7076 for a no cost review.

Pros and Cons of Going Public

Advantages of Going Public

Entrepreneurs seek to take companies public for many reasons, including:

  1. To raise funds through increased access to capital; and
  2. To create or increase liquidity in the company’s securities, which can provide shareholders with a hope of selling their stock in the open market.
  3. To fund a roll up strategy, in which they acquire other businesses using the public company’s stock as currency.
  4. To attract and compensate consultants and employees by using the public company’s stock, such as in an S-8 Plan.
  5. To create investor awareness of the public company’s brand and technology.

Perceived Disadvantages to Going Public

Entrepreneurs perceive some disadvantages to taking a company public, such as

  1. Going Public via S-1 Registration Statement requires time and some money to complete.
  2. Administrative compliance for SEC filers includes audited financials, and filing SEC reports like 10-K, 10-Q and 8-K.
  3. The public company’s shareholders must be aware of and in most cases approve your corporate actions.
  4. Transparency is required, since financials and disclosures are all available to the general public.

In the end, the decision to go public is made by entrepreneurs who believe that transparency is a good thing, and that securities compliance is a small price to pay for the potential upside and liquidity that is possible for shareholders in public companies.

OTC Markets Securities Lawyer Taking Companies Public

Entrepreneurs can discuss going public under a flat fee via S-1 Registration Statement on the OTC Markets or OTC Bulletin Board with securities lawyer Matt Stout at (410) 429-7076 or mstout@otclawyers.com.