Reference Plain Definitions Going Public in the US

Glossary.

Plain, citation-ready definitions of the terms that come up in a reverse takeover and a US going-public transaction — from shells and Form 10 to PIPEs, uplisting and PCAOB audits.

A

APO (Alternative Public Offering)

A structure that pairs a reverse takeover with a simultaneous private placement of securities, so that a private company becomes public and raises capital at roughly the same time. The reverse merger supplies the public vehicle; the concurrent financing (often a PIPE) supplies the cash.

B

Blank-check company

A development-stage company that has no specific business plan or purpose, or whose plan is to merge with an unidentified company. Blank-check offerings involving penny stock are subject to Rule 419's escrow and investor-protection requirements. A bona fide operating-business reverse merger is a distinct matter.

C

Clean shell

A shell company that is current in its SEC reporting, has no undisclosed liabilities or litigation, no tainted regulatory or trading history, a workable capital structure and share count, and a share float suitable for the plan. The cleanliness of the shell is the single biggest determinant of a smooth reverse takeover.

D

DTC eligibility

A security's ability to be held and transferred electronically through The Depository Trust Company (DTC), the central securities depository in the US. DTC eligibility allows shares to settle by book entry rather than physical certificate, which is essential for normal trading and liquidity.

F

Form 10

The SEC registration statement used to register a class of securities under the Securities Exchange Act of 1934. Filing and clearing a Form 10 makes a company a reporting company subject to ongoing 10-K, 10-Q and 8-K obligations.

Form 10 shell

A shell company that became a reporting company by self-registering under the Exchange Act via Form 10, as opposed to a shell with a prior public trading or listing history. Form 10 shells are “born clean” but do not yet have an established quotation.

Form 211 / Rule 15c2-11

The FINRA Form 211 process, grounded in SEC Rule 15c2-11, by which a broker-dealer initiates or resumes a public quotation of a security in the over-the-counter market. It requires current, publicly available information about the issuer.

Form S-4

The SEC registration statement used to register securities issued in business-combination transactions, including certain mergers, share exchanges and reverse mergers where new securities are issued to the target's shareholders.

Free float

The portion of a company's shares that is freely tradable and held by the public, excluding restricted stock and closely held blocks. Exchanges set minimum public-float and public-holder requirements, and float affects liquidity and index eligibility.

H

HFCAA

The Holding Foreign Companies Accountable Act. It can lead to trading prohibitions for issuers whose auditors the PCAOB is unable to inspect for consecutive years, and is a central consideration for China-based companies seeking a US listing.

M

Market maker

A broker-dealer that quotes both buy and sell prices in a security and stands ready to trade for its own account, providing liquidity. A market maker is central to establishing and maintaining an OTC quotation through the Form 211 process.

N

Nasdaq

A US national securities exchange with three tiers — the Capital Market, Global Market and Global Select Market. Each has quantitative listing standards covering matters such as market value, equity or income, public float, a minimum bid price and corporate governance.

NYSE American

A US national securities exchange oriented toward small and mid-cap companies. Its listing standards offer alternative tests based on income, market value or assets and revenue, together with public-float and corporate-governance requirements.

O

OTC Markets

An over-the-counter quotation system for US securities, organised into tiers including OTCQX and OTCQB. The OTC generally has lower thresholds than the national exchanges and is a common starting point, with the option to uplist later.

OTCQB

The OTC Markets “Venture Market” tier for early-stage and developing US companies. Eligibility requires current reporting and meeting the tier's standards, including a minimum bid price of one cent.

OTCQX

The highest OTC Markets tier, for established, investor-focused US and international companies that meet financial standards and disclosure requirements. It sits above OTCQB in the OTC hierarchy.

P

PCAOB

The Public Company Accounting Oversight Board, which registers and inspects the audit firms of US public companies. A US listing requires audited financial statements from a PCAOB-registered auditor, and PCAOB inspection access is central to the HFCAA.

PIPE

A private investment in public equity: the sale of securities by an already-public company to selected investors in a private placement. A PIPE is often used to raise capital alongside a reverse takeover, forming the financing leg of an alternative public offering.

Public shell

A reporting public company with a listing or quotation history but few or no operations, used as the vehicle into which a private operating company merges in a reverse takeover. Its value lies in its reporting status and market history, not its business.

R

Reverse merger

The common US term for a reverse takeover: a private company going public by merging into a public shell and taking control of it. “Reverse merger” and “reverse takeover” describe the same transaction.

Reverse stock split

A recapitalisation that reduces the number of outstanding shares and proportionally raises the price per share. It is sometimes used to help a company meet an exchange's minimum bid-price requirement ahead of a listing or uplisting.

Reverse takeover (RTO)

A transaction in which a private operating company becomes publicly traded by merging into an existing public shell company. The private owners end up holding the majority of the combined shares, and the private business becomes the public company's business. It is typically faster and more price-certain than an IPO.

See also: Reverse merger, Reverse takeover.

Rule 419

An SEC rule that governs blank-check companies conducting penny-stock offerings, imposing escrow of proceeds and securities and other investor protections. A bona fide operating-business reverse merger is distinct from a Rule 419 blank-check offering.

S

Shell company

A company with no or nominal operations and either no or nominal assets, or assets consisting mainly of cash. In going-public terms, the relevant shell is a reporting public company used as the merger vehicle in a reverse takeover.

Super 8-K

The Form 8-K, filed within four business days of a reverse merger, that includes the Form 10-level information about the newly combined company — effectively re-introducing it to the market as an operating business, with audited financials and full disclosure.

T

Transfer agent

A firm that maintains the register of a company's shareholders, records transfers of ownership, and issues and cancels share certificates or book-entry positions on the company's behalf. A transfer agent is a required part of the public-company machinery.

U

Uplisting

Moving a security from the OTC Markets to a national exchange such as Nasdaq or NYSE American once the company meets that exchange's quantitative and governance standards. Many companies start on the OTC and uplist as the business grows.

V

VIE

A variable interest entity: a contractual structure that gives an offshore listed company economic control over an operating business it cannot legally own directly. VIEs are common where a home jurisdiction restricts foreign ownership, notably in parts of China.