What is a Blank Check Shell?

OTC Markets microcap companies are often former shells.   Unfortunately for their shareholders, Rule 144 opinion letters cannot be used to clear stock for former blank check shells unless the Issuer is an SEC filer and meets the requirements of the Evergreen Rule.

However, an experienced securities lawyer may have other options under Section 4(a)(1).

A blank check company or “blank check shell” is a development stage company that has

  1. no specific business plan or purpose or
  2. has indicated its business plan is to engage in a merger or acquisition with an unidentified company.

These blank check companies are also commonly known as “419 shells”  or “Form 10 shells.”

The Evergreen Rule in Layman’s Terms

Even once these companies do merge with an operating business, they are forever known as “former shells” and Rule 144 opinions can only be issued under certain circumstances under the “Evergreen Rule.”

The Evergreen Rule basically means that unless an Issuer is an SEC filer, and has filed “Form 10 Information” including audited financials for one year post shell status, and is current in its SEC filings, Rule 144 can never be used.  As soon as a former shell becomes delinquent in its SEC filings, Rule 144 is not an option.

Unless the Evergreen Rule is satisfied, the SEC does not allow shareholders of former 419 shells to use use Rule 144 as an exemption from the registration requirements when selling stock.

Section 4(a)(1) May Be Used to Clear Stock of Former Shells

A Section 4(a)(1) legal opinion may be possible if the securities are greater than 2 years old and the Shareholder is not an underwriter or dealer.

A microcap securities attorney familiar with issuing legal opinions for former shells under Section 4(a)(1) can review your documents at no cost to determine if this alternative to Rule 144 can be used.

 

How to Sell Stock in a Former Shell Company Under Rule 144

Shareholders of Current Shells Cannot Use Rule 144 to Clear Stock

Most shareholders already know restricted stock cannot be cleared under SEC Rule 144 if the Issuer is currently a “shell company.”

An Issuer’s Past Shell Status Does Affect How Rule 144 is Applied

Shareholders holding restricted stock in OTC Bulletin Board (OTCBB) and OTC Markets OTCQB and Pink Sheet companies often wonder if the former “shell status” of the Issuer will affect the free trading status of their shares under Rule 144.

Rule 144 Requires Issuers to Be Fully Reporting For 1 Year

Yes, the Issuer’s former shell status is always important when a securities lawyer performs due diligence prior to drafting a Rule 144 opinion letter.

SEC Reporting Companies Have to Be Fully Reporting for 12 Months

This is because Rule 144 requires the Issuer to file all required SEC reports (10-Q, 10-K and 8-K) for at least 12 months after ceasing to be a shell before a shareholder can clear stock under Rule 144, even if all other requirements are met.

Pink Sheets Have to Be Fully Reporting for 1 Year Following Shell Status

OTC Pink Sheets, which do not report to the SEC, must file all of their Quarterly, Annual and Information and Disclosure Statements with OTC Markets for 1 year after ceasing to be a shell before Rule 144 can be used by a Shareholder to clear restricted stock.

144 Opinions Require Detail Regarding Past Shell Status

Rule 144 Opinions drafted by experienced securities lawyers like Matt Stout always go into detail to document the assets and operations in former shell companies.

It is important to demonstrate clearly that the Issuer ceased to be a “shell company” on a certain date, and to show that the proper post-shell reporting has remained current for the required amount of time.

Shareholders holding restricted stock in current or former shell companies can contact Matheau J. W. Stout, securities attorney at (410) 429-7076 with questions and find more information on OTCLawyers.com.