Discover Form 10 Shells & their dangers (Equivalent to unquoted shells in London)

There are many advisors and consultant as well as entrepreneurs who create "Form 10 shells" and sell them to other businessman, ultimately as reverse merger vehicles to go public.?These are sometimes called "419 shell" or "blank check" shells or "virgin shells." Equivalent to unquoted shells in London

A Form 10 shell is basically a company with limited assets and no business, hence the name "virgin". The corporation files a Form 10 application with the Securities and exchange commission (SEC) to register the company.?The interesting part is what happens next, accordingly form 10 registers a corporation with the SEC under the Securities and Exchange Act of 1934, however (pay full attention here) does not allow the company to issue any trading securities publicly. Free trading stock is attained by a different statute, which is under the Securities Act of 1933.

Any issuer may voluntarily file a form 10 registration statment under Exchange Act Section 12(g) regardless of its assets, number of shareholders or revenues. Lets not go into numbers and acts, lets keep it simple. If you want to know more about acts and statues go to a securities lawyer's website and let them bore you with procedure.

In these short articles you will get the how to use the information and the pitfalls as well as dangers, in order for you to stay out of trouble. Consider some of these articles as coupons and or a get out of jail cards.

So the game plan of the Form 10 shell is to get the company registered with SEC in order for subsequent filings to register the stock proceed quickly. Simply the procedure goes as follows: the Form 10 shell merchant creates a new company, gives it enough capital to withstand the initial expense of an audit and filing, gets a rubber stamp audit that qualifies under the SEC rules and file Form 10 with the Securities and Exchange Commission. The SEC may or may not comment on the filing. Once the filing has been accepted it is now a public company that does not have a ticker symbol and has not yet obtained DTC eligibility. "A DTC “eligible security” is?a security that is freely tradable pursuant to U.S. securities laws and is otherwise qualified to be held at DTC and serviced." investopedia.com

Now you are a reporting company and can find yourself on the EDGAR however remember you do not have a ticker symbol. The goal now is to seek a merger partner, an operating company to do a business combination (a reverse merger).

Note: Upto this point, there are no securities in the public market and the stock of the company does not trade. THERE IS NO MARKET MAKER AND NO TRADING VOLUME. The stock is not listed anywhere....

The shell you formed with Form 10 may have a limited number of shareholders, say 48-108, however the shares of these minority shareholders are not registered and do not trade. The Form 10 shell has no business except to find a revere merger.

When the reverse merger is complete, the shares of the once private company becomes a public company and the shares do not freely trade. (Detail) After the merger,?the company has little time to disclose the transaction to the public in what is known as a "Super 8-K". The SEC has 60 days to respond to comments on the reverse merger, however once the 60 days are over the private company is now public. There is a one year holding period before the shares in a Form 10 shell may be trade on an exchange. The company must also find a market maker to file a Form 211 with FINRA.

The Form 10 shells are easier to obtain and which are more certain than a standard public offering, however the process takes more time and requires more filings.?

Now you have discovered the Form 10 shell, lets dig into the danger as the title of this article says "Discover Form 10 Shells & their dangers (USA)"

I will focus here on one problem that seems to be entirely overlooked. If you are the shell promoter or the shell merchant this is for you

As you may already know the shell is controlled by you the promoter or promoters. This usually includes the directors or officers who control the shareholders. You the promoter may own up to 80% of the outstanding stock, which makes you the control person and affiliates.

The minority shareholders are usually your friend, family or business partners who you control, meaning they will listen to what you say because ultimately the shell was your idea in the first place. Because the company and the minority shareholder (your friends, ffamily or business partner) are under common control, the minority shareholders may be deemed to be affiliates. As affiliates, your friends, family or business partners' stock is restricted and not free trading.

Therefore if you, or any Form 10 shell merchant sells "99%" of the shell might be saying that your friends, family or business partners (minority shareholders) are selling free trading stock, when in fact it may be restricted.

Below I share with you a precedent case between SEC v. Kern to see what took place:

"SEC v. Kern, 425 F.2d 143 (2nd?Cir. 2005) holds that the stock held by minority shareholders of a shell was restricted because those minority shareholders are under the "common control" of the promoters of the shell (page 149 and page 150). The Court amalgamated the minority stock in that shell with the control stock because the SEC rules amalgamate stock under common control. The Court said "Indeed, this transaction -- attempting to garner large quantities of closely held companies' stock in anticipation of a public distribution -- is exactly the type of transaction for which the Act was intended to require disclosure."

As you can see defendants of Kern learned a very expensive lesson, buying up the stock in Form 10 shell can be very expensive if not done in compliance with the rules. Which can be an issue with other shells.

For my Londoners this is also similar to the un quoted shell. Cash shells on the AIM are at a minimum raise of six million pounds which started in 2019 and a minimum market cap of 30 million pounds. Better to do an unquoted shell and not duplicate costs for no reason. Will talk about them in another article.

You can learn more about reverse mergers, going public, raising money and developing a market for your stock in theses short series of articles. https://www.dhirubhai.net/newsletters/business-property-capital-6993195024473550848/

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There’s also another one demanding you to go back three spaces, which in one position will land you on Vine Street. So there’s an overwhelming case for having the orange sites. Now, most people do not know that.??

Quote

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Disclaimer: This material provided in this article should be used for informational purposes only and in no way should be relied upon for legal or financial advice. Also, note that such material is not updated regularly and some of the information may not, therefore, be current. Please be sure to consult your own financial advisor and lawyer when making decisions regarding your financial or legal management.?