How to Conduct a Reverse Merger

To conduct a reverse merger, you will need to set up a shell corporation. You will then conduct a 3-way merger, known as a reverse triangular merger, in order to end up with the 3 companies merged into 1 remaining organization. The remaining organization will be your original business, with the target corporation as a wholly owned subsidiary.

Instructions

Difficulty: Moderately Challenging

Things You’ll Need:

• Stock of value
• Shell corporation

Create a Shell Corporation

1. Write up articles of incorporation. You will need to include your new corporation's name, the business it will conduct, the number of directors who will steer it, the number of shares to be issued and the name of an agent for service of process.
2. File these articles of incorporation with the secretary of state in the state in which your corporation will exist. Remember that even though you will use this corporation as a shell in order to merge with a different company, you must still comply with all corporations laws.
3. Fund the shell corporation with money or assets from the company that you already own and are seeking to merge with the target company. To meet corporation laws in most states, a corporation (even a shell) must have enough money at the time it is established to conduct the business it stated it would do in its articles of incorporation.

Trade Stock Between Your Company and the Shell

4. Trade shares of your company's stock to the shell corporation in exchange for shares of the shell corporation's stock. This will place the assets you will use to merge with the target corporation in the correct companies.
5. Acquire every share of the shell corporation's stock for your original company. This act is what will set up the shell to be just a transitory structure.

Merge the Shell With the Target Corporation

6. Negotiate a merger deal with the shareholders in the corporation you wish to acquire. This reverse merger will occur between the target company and the shell.
7. Use the shares of your original company's stock that the shell now owns to purchase a controlling share of the target's stock from its shareholders.
8. Close down the shell corporation. Because you have depleted all of the shell corporation's assets, the corporation is said to be extinguished by operation of law. The shell stock your original company traded for is now of no value.
9. Review your new company, the target corporation. This company is now a wholly owned subsidiary of your original corporation. All shareholders in the target company are now owners of stock in your original company, and your original company owns all of the assets that once belonged to the target company.

Tips & Warnings

• Reverse mergers are often favored because they avoid the need for the consent of the board of directors of the target corporation, as well as for taxation benefits to the purchasing corporation.

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