The process of reviving a publicly traded shell company and ensuring it can once again be quoted on the Over-the-Counter Bulletin Board (OTCBB) exchange can be highly technical but essential for companies looking to regain active trading status. A company's securities can be quoted again following the approval of the 15c2-11 application by FINRA. This process is crucial for companies that have become delinquent in their SEC filing requirements or have otherwise ceased active operations but still hold potential value for future business combinations or mergers.

The Role of the 15c2-11 Application

The 15c2-11 rule under the Securities Exchange Act of 1934 requires market makers to perform a detailed review of a company’s current financial condition and disclosures before quoting its securities on the OTC markets. Once a market maker files a 15c2-11 application with FINRA and receives approval, other market makers can “piggyback” on that filing, meaning they can quote the company’s securities without going through the same extensive review.

For companies that have been dormant, the 15c2-11 process involves a thorough legal and financial due diligence to ensure that the shell is in compliance with all SEC requirements and prepared for market trading. This process is complex and requires the involvement of securities attorneys experienced in reviving such entities.

Key Components of the Due Diligence Process

Several steps are involved in preparing a company for the 15c2-11 application process. These steps require detailed attention to ensure that all filings, records, and compliance standards are up to date:

1. Reinstating Corporate Charter and Franchise Taxes: For a company to be quoted again, its corporate charter must be reinstated if it has been revoked. This often involves paying any outstanding franchise taxes in the company’s state of domicile and ensuring the company is in good standing with the state authorities.
2. Financial Statement Review and SEC Filings: It is essential to ensure that the company’s financial statements are current and compliant with SEC regulations. A Public Company Oversight Accounting Board (PCAOB)-approved auditor should review and audit these financial statements to confirm their accuracy.
3. Shareholder Records and Transfer Agent Compliance: A crucial part of the process involves ordering a complete set of shareholder records from the transfer agent to verify compliance with securities laws and examine historical issuances. If necessary, the former transfer agent is contacted to confirm the smooth transfer of shareholder records to the current agent, ensuring there have been no alterations.
4. Debt and Litigation Searches: Comprehensive searches for any outstanding debts or pending litigation are essential to ensure that there are no hidden liabilities. This includes using proprietary databases to identify any relevant legal actions or financial encumbrances.
5. DTC Eligibility: The Depository Trust Company (DTC) must confirm that the company’s shares are eligible for transfer. This ensures that the company’s securities can be traded efficiently and that there are no transfer restrictions.
6. Shareholder Meeting and Proxy Solicitation: If necessary, a shareholder meeting must be held to elect new directors, amend the articles of incorporation, or approve other essential corporate changes. This step is crucial for aligning the company’s governance with its new business objectives.

Legal Compliance and Regulatory Considerations

Reviving a shell company to full trading status requires more than just meeting the financial and structural requirements. Securities attorneys play a pivotal role in ensuring that all aspects of the company's operations meet the legal standards required by the SEC and FINRA.

• Corporate Governance Compliance: Ensuring that the company’s board of directors and management team are in place and meet SEC governance standards is a key part of the due diligence. This includes educating directors on their legal responsibilities, such as avoiding conflicts of interest and adhering to reporting obligations.
• SEC Comment Letters: Any unresolved comments from previous SEC filings must be addressed. Securities attorneys help resolve these issues and ensure that the company’s filings are up-to-date.
• Preparation of New Registration Statements: If the company plans to offer securities to the public, a new Registration Statement may be required. This can involve the preparation of Forms S-1 or S-8 to register the company’s securities for public trading.

Finalizing the 15c2-11 Application

Once all due diligence is complete and the company is in good standing, the market maker can finalize and submit the 15c2-11 application to FINRA. Upon approval, other market makers can begin quoting the company’s securities, and the company can resume active trading on the OTCBB.

The Importance of Expert Guidance

The 15c2-11 process can be intricate, but with the right legal guidance, it can be completed efficiently and effectively. An experienced securities attorney will ensure that all aspects of the company’s compliance, financials, and governance are in place, allowing for a smooth transition back to active trading status. By understanding where to look, what to look for, and how to address any potential issues, legal professionals help companies navigate the complexities of the process and ensure a successful outcome.

For companies seeking to revive their trading status or become a merger target, the 15c2-11 process is a crucial step in that journey. Proper due diligence, adherence to SEC requirements, and expert legal support make all the difference in achieving a successful revival.