Over the past few years, reverse mergers have become an
increasingly popular way for China-based companies to access
U.S.equity markets. For many China-based companies, reverse mergers
offer an attractive alternative to an Initial Public Offering
("IPO"), because reverse mergers are faster and less
expensive than IPOs.According to a recent report, 159 China based
companies engaged in reverse mergers from 2007 through the first
quarter of 2010, while only 56 China-based companies engaged in
traditional IPOs during the same period.
In such a reverse merger, a China-based private company allows
itself to be acquired by a publicly traded shell company in the
United States that has no significant operations, assets or value
other than that its stock is publicly traded. Once the shell target
is acquired, its board of directors resigns and turns control over
to the China based company's board of directors. The
company's name is often changed at this point to the name of
the
