Non-Reporting ShellsBy William CatePublished January 1999[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]Clean shell...
Non-Reporting Shells By William Cate Published January 1999 [http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
Clean shells don't exist. Among the dirtiest of dirty shells are non-reporting shells. A shell is a company that's trading but lacks assets. Usually, the private company buys the shell and puts their business into it. It rarely works out well for the private company.
As I read Section 5 of the 1933 U. S. Securities Act, the only American stock that should be publicly traded are the shares of companies reporting to the U. S. Securities and Exchange Commission (SEC). The National Association of Securities Dealers (NASD) didn't share my view of the need to be a "reporting" company to trade on the Over-the-Counter Bulletin Board (OTCBB). In 1998, they changed their minds. In January 1999, the NASD announced that they would be delisting about 3,400 OTCBB companies that weren't "reporting" to the SEC. The delisting will start in July 1999. The companies will be delisted by trading symbol starting with AA. The last of the companies will be delisted in 2000.
The NASD advises that "non-reporting" companies can become reporting companies by filing a Form 10SB with the SEC. It will cost the non-reporting company over $100,000. I suspect that few non-reporting applicants will get their "Effective" letters before they are delisted.
Applying the axiom that "There's a sucker born every minute," an industry developed to sell these worthless shells to unsuspecting private companies. You can own your worthless non-reporting shell for only US$150,000.
I interviewed one shell seller for a client. To my comment that the shell company was facing delisting in August, his reply was, "but there is so much more you can do with a company about to be delisted."
My reply was "what more can I do with a company that's about to be delisted? There was a pause and then a click.
If you buy a non-reporting shell, you deserve the failure that will certainly follow. There are a few things that can be done with non-reporting shells. But these are options for market professionals, not entrepreneurs building real companies.
To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website: [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]