Form 211

A form that must be completed by a market maker and filed with the Financial Industry Regulatory Authority (FINRA) to initiate or resume quotations for a security on the OTC Bulletin Board, OTC Markets or any similar quotation medium. Form 211 completion indicates that the market maker has satisfied all applicable requirements of SEC Rule 15c2-11, as well as the filing and information requirements of FINRA Rule 6432.

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Rule 144

Rule 144 is a regulation enforced by the U.S. Securities and Exchange Commission that sets the conditions under which restricted, unregistered and control securities can be sold or resold. Rule 144 provides an exemption from registration requirements to sell the securities through public markets if a number of specific conditions are met. The regulation applies to all types of sellers, in addition to issuers of securities, underwriters and dealers.

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SEC Attorney

An agency of the U.S. Government that serves at the primary regulator of the securities trade. It attempts to ensure that all trades are fair, and that no price manipulation or insider trading occurs. Additionally, the SEC promotes full disclosure and monitors mergers and acquisitions to ensure continued competitiveness. It works with several self-regulatory organizations, notably FINRA, to enforce its regulations. Most securities offered through interstate commerce must be registered with the SEC.

Accounting firm

A company that specializes in accounting services for clients. That is, an accounting firm may handle a client's payroll, accounts receivable and accounts payable, taxes, and/or any number of other services. Many accounting firms also offer auditing or advisory services

Private placement

The sale of a bond or other security directly to a limited number of investors. For example, sale of stocks, bonds, or other investments directly to an institutional investor like an insurance company, avoiding the need for SEC registration if the securities are purchased for investment as opposed to resale. Antithesis of public offering.

FINRA compliant

A self-regulatory organization that assists the SEC in regulating financial markets, notably exchanges and companies that deal with securities. Among other duties, FINRA enforces rules, arbitrates disputes, and provides training and licensing services. Contrary to the belief of some, it is not a government agency. It was created in 2007 with the merger of the National Association of Securities Dealers and the NYSE regulatory board.

EDGAR Filling Service

EDGAR is an electronic database that contains all the corporate financial reports filed with the Securities and Exchange Commission (SEC). Any company with more than $10 million in assets and over 500 shareholders, or that is listed on a major exchange in the United States or quoted on the Over the Counter Bulletin Board (OTCBB) is required to file prospectuses, an annual 10-K -- or audited financial report -- three unaudited 10-Qs, notices of insider trades, tender offers, and other detailed company information. Smaller companies may file voluntarily. You can access all EDGAR filings free of charge on the SEC website (

Transfer Agent

A transfer agent is a trust company, bank or similar financial institution assigned by a corporation to maintain records of investors and account balances. The transfer agent records transactions, cancels and issues certificates, processes investor mailings and deals with other investor problems (e.g., lost or stolen certificates). A transfer agent works closely with a registrar to ensure that investors receive interest payments and dividends when they are due and to send monthly investment statements to mutual fund shareholders.

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Market Maker

A market maker is a broker-dealer firm that assumes the risk of holding a certain number of shares of a particular security in order to facilitate the trading of that security. Each market maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares, and once an order is received from a buyer, the market maker immediately sells from its own inventory or seeks an offsetting order. The Nasdaq is the prime example of an operation of market makers, given that there are more than 500 member firms that act as Nasdaq market makers, keeping the financial markets running efficiently.

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DTC Eligibility

DTC is the world's largest central securities depository. It accepts deposits of over 2 million equity and debt securities issues (valued at $23 trillion) from over 65 countries for custody, executes book-entry deliveries (valued at over $116 trillion in 2000) records book-entry pledges of those securities, and processes related income distributions DTC is a member of the U.S. Federal Reserve System, a limited-purpose trust company under New York State banking law, a registered clearing agency with the Securities and Exchange Commission, and is owned by the Depository Trust and Clearing Corporation (DTCC), which is in turn owned primarily by most of the major banks, broker-dealers, and exchanges on Wall Street.

Investor Relations

Investor relations (IR) is a department, present in most medium-to-large public companies, that provides investors with an accurate account of company affairs. This helps private and institutional investors make informed buy or sell decisions. A company's IR department also serves as a bridge for providing market intelligence to internal corporate management.

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Mergers and Acquisitions

Mergers and acquisitions (M&A) is a general term that refers to the consolidation of companies or assets. While there are several types of transactions classified under the notion of M&A, a merger means a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.

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PCAOB Auditor

A non-profit organization that regulates auditors of publicly traded companies.

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Depositing Shares

A transaction involving a transfer of funds to another party for safekeeping

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Regulation A is exemption from registration requirements – instituted by the Securities Act – that apply to public offerings of securities that do not exceed $5 million in any one-year period. Companies utilizing the Regulation A exemption must still file offering statements with the Securities and Exchange Commission (SEC), however, the companies utilizing the exemption are given distinct advantages over companies that must fully register. The issuer of a Regulation A offering must give buyers documentation with the issue, similar to the prospectus of a registered offering.

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Update December 2018

In December 2018, the SEC adopted rules to allow SEC reporting companies to use Regulation A to raise up to $50 Million in a 12-month period. Effective January 31st, eligible companies can file a Form 1-A to commence their offering.

Previously, Regulation A was not available to companies that were subject to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Tier II Regulation A offerings are exempt from Blue Sky registration and are freely tradeable, making them an attractive alternative to a traditional IPO.
The new rules offer companies more flexibility and will allow them to benefit from ‘testing the waters’, general solicitation, and reduced underwriting fees. We believe that online capital raises will eventually become as mainstream as online trading has become for retail investors.

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What is a Reverse Merger?

Reverse merger can be best described as a transaction where a private company merges into a company which is already public. Generally, the private company or its’ investors acquire control of the public company and then consummate the merger. Reverse mergers have been a popular way for private companies to go public until recently when the SEC and FINRA made these sort of transactions more difficult through increased laws and regulations.

What are the advantages of a Reverse Merger?

There are many advantages of a reverse merger, including but not limited to:

  • A reverse merger transaction can be completed in a few weeks;
  • All of the transaction costs are known upfront so there are no surprises;
  • Disclosure documentation is not generally reviewed by the Securities and Exchange Commission;
  • There are few parties involved, so transactions can close fairly smoothly;
  • Less time consuming for management;
  • Success is not dependent on marketing conditions;
  • A reverse merger transaction costs less than a traditional IPO;
  • Any legitimate operating business can become publicly traded through a reverse merger, regardless of their financial size or condition.

What are the disadvantages of a Reverse Merger?

There are several disadvantages of a reverse merger, including but not limited to:

  • Significant financial and legal due diligence is required of the private company before entering into any transaction;
  • Post-transaction, the private company inherits all of the financial and legal obligations of the public entity;
  • Often, the types of people involved in reverse merger transactions have questionable ethics and integrity;
  • Shareholders of the public entity retain a small percentage of the outstanding shares which results in some dilution;
  • Reverse mergers cost more than a Direct Public Offering;
  • No investment capital is raised with a reverse merger unless that is organized separately.

While there are many companies trading publicly on the open markets, only those will little or no business operation would be suitable candidates for a reverse merger. Generally, these companies are called “shell companies” because little remains from its’ original business operations. Many times, shell companies failed to achieve their original business objectives and have terminated their operations but have maintained the publicly traded status as a way to maximize shareholder value. In other cases, shell companies were formed for the sole purpose of entering into a reverse merger transaction. In this case with the recent increase in laws and regulations you will not be able to reverse merge into a blank shell anymore. Depending on the rules and regulations followed, shell companies can be a legitimate or seriously problematic conduit for a private company to become public. Once a private company merges into a public entity, it inherits any financial and legal issues of the predecessor company. Therefore, a key part of reverse merger transactions involves financial and legal due diligence.

What are the costs of a Reverse Merger?

A reverse merger has six major cost components:

  • Shell acquisition
  • Accounting - audit fees
  • Legal fees
  • Capital market advisory fees
  • Filing fees
  • Financing fees

Often, acquiring control of the publicly traded company is the biggest financial cost of the reverse merger transaction. On average shell companies cost approximately $375,000 to $400,000 (excluding the cost of accounting, audit and legal services).

Accounting fees, legal fees, capital market advisory fees and filing fees are largely dependent on the size and complexity of each transaction. Some transactions can be completed for about $100,000 while others can cost much more. The legal disclosure requirements of a reverse merger are very similar to that of a direct public offering, so all of the professional fees are comparable and in addition to the cost of acquiring control of the public vehicle.