Braeden William Lichti
6 min readFeb 28, 2022


Going Public through Shell Companies in the US and Canada

What is a shell company?

In recent years, shell companies have gained traction on Wall Street in the form of SPACs or “special purpose acquisition companies.” Shell companies such as SPACs are companies with no commercial operations or staff. Instead, they are created to raise capital via an Initial Public Offering (IPO) to acquire existing businesses. Shell companies can be useful as a way to raise capital for cash-strapped businesses.

How does this work? Shell companies fundraise and the money is kept in a trust, until either the shell company’s management team takes public a private company of interest, or the company is dissolved, and money returned to investors. Keep reading to learn more about shell companies, including SPACs, in the US and Canada, including examples of successful transactions by shell companies.

In Canada: Capital Pool Company (CPC)

In Canada, the Capital Pool Company or CPC program is the main way for companies to go public on the Toronto Stock Exchange (TSX). The CPC, which is sponsored by the TSX Venture Exchange or TSXV, connects growth companies to experienced investors that can help raise capital. The TSXV IPO process for CPC participants provides flexibility and certainty for private companies.

On January 1, 2021, The CPC announced changes that make it easier to participate in the program. These changes include increasing the amount of capital that can be raised before a business makes an IPO; escrow provisions that make it easier to access cash in escrow for businesses going public; and board requirements that make it easier to operate with a greater number of international corporate board members, rather than solely allowing residents of the United States and Canada to serve on the shell company’s board.

For U.S. Exchanges: Form 10

The U.S. Securities and Exchange Commission (SEC) requires companies holding more than $10 million in assets and which have 750 or more shareholders to file Form 10–12G, also known as Form 10.

Companies can list through a public SPAC or non-public Form 10 Acquisition Company filing, to make shares available to trade on the Over-the-Counter (OTC) stock exchange or on NASDAQ.

Generally, with a Form 10 filing, the company shares are traded on the OTC market if the company has less than $50 million in market cap or under $10 million in shareholder net equity.

Examples of Successful Reverse Mergers by Shell Companies

Penninsula Acquisition Corp Reverse Merger with Transphorm, Inc.

Companies seeking to raise funds frequently go public via a reverse merger with a public shell company. One notable example is Peninsula Acquisition Corp’s reverse takeover (RTO) with Transphorm, Inc.

In August 2017, Penninsula filed Form 10. In the Form 10, they mention that “the business purpose of the Company is to seek the acquisition of or merger with, an existing company.” In March 2020, they announced the reverse merger of their company with Transphorm Inc., a semiconductor development and manufacturing company, which raised $21.5 million through private placement, an alternative to the traditional IPO. Currently traded as an Over-the-Counter or OTC stock, Transphorm will uplist to the NASDAQ on February 22, 2022, where it will trade as TGAN.

Olivia Ventures Reverse Takeover with Compass Therapeutics

In 2018, Olivia Ventures filed Form 10 with the SEC, announcing their plan “to merge with an unidentified company or companies.” Nearly two years later, they completed a reverse merger with Cambridge, MA-based biotech company Compass Therapeutics, following successful private placement financing of $60 million. Compass Therapeutics is currently engaged in several U.S.-based clinical trials to treat biliary tract cancer (cholangiocarcinoma), colorectal cancer, and ovarian cancer.

Successful Examples of Form 10 Biotech Spinoff Companies

In the biotech and biomedical space, existing public companies often spinoff their work into creating other public companies through Form 10.

· Biotech giant Merck announced in 2021 that it would spin off its women’s health research pipeline into a new company called Organon.

· Abbott Labs, in 2013, spun off its research-based pharmaceutical companies, rebranding them as Abbvie, Inc., via Form 10.

· Cambridge, MA-based bluebird bio, Inc. announced in late 2021 that it will spin off its oncology research and development programs into a new company called 2seventy bio.

More about SPACs: Special Purpose Acquisition Corps

Broadly speaking, a SPAC is a public company that has IPO’d and has the intention of raising capital to invest. SPACs are sometimes referred to as “blank check” entities because they fundraise to invest in an unknown entity. The SPAC sets its share prices at an affordable level, and has a well-defined timeframe — typically, about two years — to put investors’ money to work. Read more about SPACs and how they work here.

Both the US and Canadian markets have SPACs, but they have subtle differences. Read more about the differences between US and Canadian SPACs below.

There are advantages and disadvantages to SPACs. SPACs are attractive to companies because they are fast, less expensive, less volatile, and have looser regulatory oversight than traditional IPOs. SPACs allow investors to get in early, before a company has been announced, and at a lower price. Some risks of SPACs include failure of the SPAC to find a target, risk of dilution if the SPAC procures additional funding, greater regulation in recent years, and poor performance of these new companies.

Canadian-listed SPACs

Canadian-listed SPACs make it easier for smaller issuers to gain more attention and coverage, writes the Toronto Stock Exchange in their guide to SPACs. Canadian-listed SPACs are also faster to create than US-listed SPACs but have less popularity and enthusiasm among Canadian investors. Micro-SPACs can be facilitated via the CPC program discussed above. Canadian-listed SPACs must raise at least $30 million from at least 300 public shareholders in its IPO.

Examples of Canadian-listed SPACs include those in the cannabis industry. Such companies are typically prohibited from trading on the US-based exchanges such as NASDAQ or NYSE. There’s also the NextPoint Financial SPAC, which is dedicated to increasing access to financial markets for all.

US-listed SPACs

US-listed SPACs work similarly to those in Canada, though the process takes slightly longer, which can pose execution risks. In the US, SPACs go through the typical IPO process with the SEC. They have a two-year lifespan in which time they must raise money, both through selling shares and via private investments. These deals are “complex” and “must be executed on tight timelines,” writes the Harvard Business Review. In recent years, US-listed SPACs have been subject to greater oversight.

While SPACs used to be considered a risky investment back when they were first created in the US in the 1980s, they are now thought of more as pre-funded IPOs. “Companies looking to go public via SPAC are basically negotiating a prefunded IPO. They have more time with investors to delve in deeper on the opportunities each company has in its future,” writes Biospace. In 2020, SPACs broke records by raising $83.3 billion in the US. Highlighting the immense potential of SPACs in biotech, 33% of this capital was raised in the technology sector, and 7% in healthcare.

Notable SPAC transactions include the merger of Virgin Galactic and Social Capital Hedosophia to create, in 2019, the world’s first publicly-traded commercial human spaceflight company. The merger, which raised “several hundred million dollars,” provided the capital needed by Virgin Galactic to make human commercial spaceflight possible. Another notable SPAC transaction involved the Gores Group’s SPAC, which helped Swedish electric vehicle maker Polestar go public, trading under stock ticker symbol PSNY on NASDAQ.

The Bottom Line

Shell companies, such as SPACs, have gained importance in the venture capital arena as a way to raise capital easily to help acquire new companies. The rapid growth of SPACs in the technology sector, coupled with numerous high-profile, successful acquisitions powered by shell companies, underscores the need for investors to understand this type of fundraising.