In some cases changing the name of the shell used in a reverse merger scenario is immaterial to the longevity of the business, especially if the private company still maintains complete autonomy and branding. The best example is the overly-referenced Berkshire Hathaway. When Warren Buffett merged his growing insurance empire into the small, pink-sheet-listed textile and furniture manufacturer in the early sixties, changing the name of the entity was not a top priority. Perhaps because the textile and furniture business also continued operations within the public parent for over another 20 years. Ultimately, Berkshire itself became a household name. Certainly, using Berkshire Hathaway is an unfair example. In most instances, companies that go public through the reverse merger process will desire or require a corporate name change of the company in which they have consummated a deal with. Here are a few pointers on this process.
Because a reverse merger does little to change the corporate structure (apart from the company’s shareholders), including the name, many companies will want the public firm to more accurately reflect the operations, branding and business of the previous private company. The process of changing the name of the public entity often requires the following time-consuming steps:
Commonly, the process of a corporate name change occurs at the next shareholder meeting so as to avoid the typically arduous process of calling a separate meeting just to change the name of the company.
A Quicker, Less Painful Option
For firms incorporated in Delaware–of which a good majority are–there is a much faster and ultimately less painful option for enacting a corporate name change. In 1998 Delaware passed a law which allows a public shell corporation establish a new wholly owned subsidiary and permits the a short-form merger effectively changing the name of the business to the new, more desirable name. This process requires no shareholder approval as long as the parent owns more than 80% of the newly formed subsidiary. The newly formed entity can, under Delaware law, become the sole surviving entity in the merger and the new entity is allowed to adopt and keep the legal name of the sub.
If your firm isn’t incorporated in Delaware, then the short-form merger likely isn’t an option.
If you’re ultimately not in Delaware, then changing the name has more of a process attached to it, than it’s worth. In fact, most opt-out. Not all companies are as concerned about the name of their parent in a reverse merger scenario. In fact, changing the name is a formality that just isn’t worth the headache. For those concerned with branding, it could mean a great deal.