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Corporate Shells |
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by: Joseph
Quinones |
A corporate shell could
be liken to a house that had been occupied by a family, prior to the
family moving out it was a home. But now it is just shell, a
skeleton a plain house with nobody in it, but if a family was to
purchase the house and moves in, it becomes a home.
Similar,
a corporate shell was once the home of an operating company but once
the operating company ceases to reside there because of adverse
circumstances ( bankruptcy or liquidation ) all that remains is the
shell.
Buying and selling corporate shells has become big
business, just a couple of years ago a corporate shell sold for
approximately $150,000.00 today they go for upward of $500.000.00.
Talk about inflation! The increase in price is due to increase
scrutiny by the Securities and exchange commission and the demand
for shell by Chinese companies seeking to become listed in the
United States.
As usual when there is money to be made the
vultures appear with their unscrupulous practices. In most cases the
shells are own by the same operators who are also acting as
consultants to the companies they are helping to become public. This
may be a conflict of interest but they are able to hide their
ownership well with the help of securities lawyer who may also have
a piece of the shell.
The situation described above creates
a huge conflict of interest that the regulators have yet to figure
out because of the intricacy of the many participant who work in
harmony and are able to conceal their actions from the regulators.
If the consultant indirectly own a shell and is trying to
sell it to the company that they are advising, how well is he going
to represent the client when it comes to price and the amount of
shares that they are to Retain? And how about with assisting the
company in performing the proper research on the shareholder list
and the history of the shell.
Don’t get me wrong there are
many honest and well meaning consultants and shell vendors who
established the shells for the sole purpose of creating a vehicle
for private companies to go public, Just like you have the
unscrupulous characters that appear every time there is an
opportunity to make money, you also have honest enterprising
individual who see an opportunity and take advantage of it.
Once the operating company purchases the corporate shell and
merges into it, the owner of the private company receives a majority
of the shell corporation stock (usually 90-95% ) through a new issue
of stock for the private enterprise.
The public corporation
will normally change its name to the private company’s name and
elect a new Board of Directors which will appoint the officers of
the company. The public corporation will usually have a base of
shareholders sufficient to meet the requirements for listing on the
Nasdaq Small Cap Market of Nasdaq Bulletin Board. Although some
shell have as few as 35-50 shareholders and are currently listed on
Bulletin Board or the NQB pink sheets.
At our company we
don’t have an inventory of shells nor do we recommend a single
vendor, instead we recommend several and after the private company
selects a vendor we approach the process as if we were buying the
shell for ourselves.
For more information please visit our
website: http://www.genesiscorporateadvisors.com
Josephquinones@genesiscorporateadvisors.com
About the author:
Joseph D. Quinones, President
of Genesis Corporate Advisors has spent over 25 years in the
securities industry. In 1992 he founded JDQ Financial Group, Inc.
and proceeded to build it up from a one man operation to the point
where it employed many traders, advised numerous client and generate
millions in revenues.
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