What is a “Blank-Check Company?”

by Norris Law Group on August 7, 2014

What is a “Blank-Check Company?”Wyoming is one of three states (along with Nevada and Delaware) that allow individuals and corporations to anonymously set up what are known as “shell corporations.” A shell corporation may be set up with no business plan. All states allow the creation of shell corporations, but only WY, DE, and NV let the owners remain anonymous.

Some business owners use these shell corporations as a vehicle known as a “blank check company.”

According to the Securities and Exchange Commission (SEC), “a blank check company is a development stage company that has no specific business plan or purpose or has indicated its business plan is to engage in a merger or acquisition with an unidentified company or companies, other entity, or person.”

Blank-check companies usually offer “speculative investments” which, while legal, may also be extremely risky. Such investments may fit the SEC’s definition of “microcap stocks” or “penny stocks.” Due to the risk to potential investors, the SEC does not allow blank-check companies to use some of the exemptions from the registration requirements typically afforded to public businesses that sell securities. More information about these exemptions directed at small businesses is available in a brochure published by the SEC titled Q&A: Small Business & the SEC.

Blank check companies are sometimes used as “special purpose acquisition companies,” or SPACs. SPACs “specifically pool funds in order to finance a merger or acquisition opportunity within a set timeframe” and may be designed to avoid some of the legal requirements of the SEC. SPACs, however, may also be structured to incorporate a number of SEC so that they will be more attractive to potential investors.

Attorney Graham Norris and his associates at the Norris Law Group serve the residents of Utah County, UT and throughout Utah, Wyoming and Idaho. Contact them today at 801-932-1238 or online for a free consultation.

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