Public Shells: article and definition of public shell.
What is a Public Shell?
Every company that goes public believes it will grow and increase
its share value. Often, companies run into trouble; they can run out
of funding, have production problems, distribution problems,
management/employee problems, lawsuits, etc. So what happens when a
public company goes "out of business"? Good question.
In many cases, these defunct
companies maintain their public trading status and become "shell"
companies. They generally have no business operations, little if any
assets and trade for pennies. Some people think that these companies
are worth a lot of money. Why? Because private companies that want
to become public can purchase control of the shell in order to
become public itself.
It works like this: a
fictitious HiTech Corp. goes public at $20.00 per share but several
months or years later, runs into trouble and then closes down its
business.
Although the company no longer has any operating business
or any assets, the remaining officers and directors decide to
maintain the trading status. The stock continues to trade
sporadically at pennies per share.
Along comes
fictitious Genetic Biotech Corp.
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