Free Initial Consultation
Laura Anthony, Founding Partner
Toll Free: 800-341-2684
Phone: 561-514-0936
Fax: 561-514-0832
LauraAnthonyPA@aol.com |
West Palm Beach
Legal & Compliance, LLC
330 Clematis Street, Ste. 217
West Palm Beach, FL 33401 |
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Public
Shells
When publicly traded companies run out of money, undergo significant changes
in management, experience internal conflicts or a variety of other
unforeseen circumstances, they may fail to continue to satisfy the reporting
requirements of their corporate shell. Some public shell companies fall
behind in their reports or stop reporting entirely.
Companies that never reported may allow their 15c2-11 to lapse or stop
holding regular board and shareholder meetings; stop maintaining minutes and
otherwise have allowed their corporate records to become delinquent.
The term "cleaning up" a public shell is frequently used throughout the
securities industry and can involve various legal issues including:
- Reinstating a corporate charter and paying back franchise taxes
- Updating articles of incorporation and bylaws to make them current and fit
the needs of the current company.
- Conducting reverse splits to lower the float and increase the stock price.
- Updating SEC reportings or initiating reporting for the first time.
- Answering outstanding SEC comments on prior reports that were never
addressed
- Putting a qualified board and/or management into place
- Updating the minute books
- Holding a shareholders' meeting and updating reports to shareholders
- Updating compliance per SOX by adopting corporate compliance standards and
a code of ethics
- Educating the new or current board regarding their duties as a board of a
public company, including the duty of loyalty, duties regarding conflict of
interest and self dealing, duties against short swing profits and reporting
requirements under sections 13 and 16 of the Securities Exchange Act
- Putting a competent management team in place and enhancing corporate
structure
- Updating or creating a business plan
- Updating audits
Pink Sheet Shell Companies
Pink Sheet Shell Companies or "Pinks" are companies that are listed by the
National Quotation Bureau (NQB). FINRA and the SEC do not require Pink Sheet
companies to maintain current reporting status or undertake expensive annual
audits although audits are recommended. Also, there are no listing
requirements for the Pink Sheets such as amount of capital; number of
shareholders; market cap; share price; or amount of assets.
A Pink Sheet Company is regulated by state and federal securities laws, but
is not subject to separate exchange regulations. Requirements regarding
number of board members, whether such board members are independent, annual
shareholder meetings, proxy notices etc. originate from state law and are
not imposed by the National Quotation Bureau or the Securities Exchange
Commission (SEC). For example, the American Stock Exchange (AMEX) and the
New York Stock Exchange (NYSE) in and of themselves are Self Regulatory
Organizations (SRO's) whereas the National Quotation Bureau is not. In
summary, Pink Sheets are subject to fewer regulations and are governed by
fewer regulatory bodies than NASDAQ Small Cap, NYSE and AMEX issues.
Pink Sheet Shell Companies exist in various forms; including reporting and
non-reporting as well as trading and non-trading. Pink Sheet Companies are
generally priced lower than Bulletin Board Companies and are usually subject
to the limitations of the Penny Stock Rules promulgated under the Securities
Exchange Act of 1934 including:
- Broker-dealers who recommend these stocks must establish a special written
suitability determination for the purchaser.
- The purchaser's written agreement to the transaction must be received
prior to the sale.
- The purchaser must be provided with risk disclosure documents that
identify certain risks associated with investing in penny stocks and
describe the market for penny stocks as well as a purchaser's legal
remedies.
- Broker-dealers who recommend these stocks must obtain a signed and dated
acknowledgment from the purchaser demonstrating that the purchaser has
actually received the required risk disclosure document before a transaction
can be completed.
The term "Pink Sheets" also refers to a centralized quotation service that
collects and publishes market maker quotes for OTC securities in real time.
Their web site PinkSheets.com provides price quotes, financial news and
information about OTC companies to investors. Quotes are provided with a
fifteen-minute delay.
The Pink Sheets is not a stock exchange or a regulated entity. Price
quotations are provided by OTC market makers and company information is
provided by the OTC companies.
Bulletin Board Shell Companies
The highest priced public shells that trade on the Over the Counter (OTC)
market for reverse mergers are OTC Bulletin Board Shells or OTCBB's.
The OTC Bulletin Board is also a centralized quotation system and is
operated by the Financial Industry Regulatory Authority (FINRA) and requires
that all companies whose stock is traded on the OTC Bulletin Board (or
NASDAQ or AMEX) maintain their current reporting status with the Securities
and Exchange Commission (SEC), including current audited financial
statements. OTC Bulletin Board Shells, like Pinks, exist in trading and
non-trading varieties.
Bulletin Board Companies are reporting entities and subject to all the
reporting requirements of the SEC. They are required to be "transparent" in
their operations so that investors can make an informed decision before
investing. In addition, merger candidates can assess the value of the stock
being used to acquire them.
Also like Pink Sheets, OTCBB Shells are part of the National Quotation
Bureau and not a Self Regulatory Organization (SRO). Accordingly, they are
not bound by the additional rules and regulations of exchange SRO's
regarding operations and dependence of directors; the requirement to
maintain a separate audit committee; and the requirements to hold annual
meetings while satisfying proxy requirements, all of which requirements are
governed by state law.
There are no actual listing requirements associated with Bulletin Board
Shells; for example the Bulletin Board does not set thresholds regarding
number of shareholders; assets; market capitalization and share price. The
fundamental difference between a Bulletin Board and a Pink Sheet or Grey
Sheet is the reporting requirements. While some Pinks are non-reporting
entities, a Bulletin Board is subject to the reporting requirements of the
Securities Exchange Act of 1934 including but not limited to annual reports
on Form 10K, quarterly reports on Form 10Q and current reports on Form 8K.
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Reverse Mergers
Contracts 
