Weighing Reverse Mergers For Private Chinese Cos.

Reprinted with permission from Portfolio Media, Inc.

In a reverse merger transaction, an existing "shell company" — which is a public reporting company with few or no operations — acquires a private operating company with a viable business — usually one that is seeking access to funding in the U.S. capital markets (Chinese reverse merger or CRM). Typically, the shareholders of the private operating company exchange their shares for a large majority of the shares of the public company. Although the public shell company survives the merger, the private operating company's shareholders gain a controlling interest in the voting power and outstanding shares of stock of the public shell company. The assets and business operations of the post-merger surviving public company are primarily, if not solely, those of the former private operating company.