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Corporate
Shells
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by:
Joseph Quinones
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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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