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The Art of the Reverse Takeover

We are often asked the question, “What really are the attributes of a “good” shell company?”

By Peter Traynor of ITB Solutions

There are certain attributes that are considered favourable in a so-called “shell” company that make it an attractive target for a business seeking to go public by means of a reverse takeover (“RTO”). Among those attributes are the following two:

Up to date – If the shell is up to date with its filings, and has a tidy minute book, that is all to the good. There are many shells which have been suspended or delisted for failing to file on a timely basis. These are generally to be avoided unless a quick look at the state of disrepair reveals the possibility of a not-too-difficult, or costly, rehabilitation. Complicated restoration processes can cost time and money, and the audit can make it not worth the bother. Best to always seek a “clean” shell that is right up to date, or close to it, with all its regulatory filings.

Reasonable Management – the importance of having reasonable, well-informed and professional people in the management team of the shell with whom you can work cannot be over-stated. It is far more likely that a deal can be struck if the management has a reasonable sense of the value of their company, and a reasoned and respectful attitude toward the negotiation. (Of course, this goes both ways – remember to show the same courtesy to the other side!)

Note too that there’s always the possibility that one of the directors could stay on, post-RTO, preserving and enhancing the relationship with the shareholder base, helping build rapport for the new team, and effectively preventing more selling than necessary.

Stay tuned for the next article on “Valuing a Shell”– coming up next week.

ITB Solutions provides consulting services to companies seeking to go public in Canada. Since 2005, ITB Solutions has provided listings development services to the Canadian Securities Exchange. CSE is the first new stock exchange approved in Canada by securities commissions in over 70 years and has also been designated by the Federal Department of Finance as an eligible stock exchange for RRSPs and TFSAs. CSE is also a recognized exchange by the SEC as a Designated Offshore Securities Market. We assist companies with the listing application and managing the process to become publicly tradable on CSE, as well as offering advice on how to make the most of your public listing. We also assist the exchange in marketing to potential public companies worldwide. You can reach Peter Traynor at 647-500-0493 or by email at peter@itbsolutions.ca

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