SPACs can grow with revenue and business model structuring by investing in IPR and patent as intangible assets. The recent trend shows that prices of SPACs shares may fall after the merger. Hence, shareholders need to plan accordingly and invest strategically in creation of intangible assets by way of patents or trademarks. This becomes absolutely necessary for SPACs as overall media sentiment with reference to SPACs is mostly negative.
Private Placement Traders (PPLs) and Special Purpose Acquisitions Companies (SPAC) work in the same manner but are not interchangeable. Special Purpose Acquisition Companies firms formed to raise quick cash in an IPO with the intention of later using the proceeds for acquiring one or more specific businesses or assets. The terms ‘special purpose’ and ‘private placement’ have different implications. While a business may be listed on the Pink Sheets, for example, it is likely to undergo subsequent listing on the Nasdaq or the NYSE. If a business is listed on the Pink Sheets, it is unlikely to experience any significant liquidity flow.
A special purpose acquisition company will most often need funding beyond the value of the purchase price secured by the shares of the company. Since the purchase price is usually much lower than the market value of the business, a secondary market exists for the rights to acquire additional businesses in this situation. In order to access this secondary market, investors need to join the buying committee of a company. This ensures that the buyer has sufficient confidence in the company’s future performance. The sale of these rights is typically made in an IPO or through a registration of an entity that is a direct result of the IPO.
In order to place an IPO or special purpose acquisition in a trust account, an investor must first complete an IPO registration statement. This statement identifies the name and type of business to be sold and includes underwriting requirements. Upon completion of the IPO, the purchaser receives a copy of the registration statement along with written permission from the seller to execute the sale and holds the exclusive right to buy securities in this transaction. When the proceeds from the sale are deposited into a trust account, the broker or financial institution that executed the IPO may hold the funds in a segregated account until they are ready to distribute them. If the business is sold at an initially discounted price, the purchaser is entitled to the difference- up to the amount of the discount and minus the cost of holding the funds in the trust account.
An IPO registration represents the investor’s agreement to accept the set prices for shares of the company’s stock. Usually, the amount of the purchase price and the net proceeds from the IPO will be equal to or greater than the total amount of the purchase price plus the total gross proceeds. Although the IPO registration does not guarantee success in the venture, it helps to provide investors with a measure of the venture’s potential. There are two ways to make money from a private company. One way is to sell the shares and the other way is to use them as capital. If the company operates profitably, the profits are generally tax-free and can be reinvested in the business. This option is referred to as the “earnings stripping” method.
A private company can also issue equity as a result of going public. Investing in a company requires careful planning and consideration of all details. As part of this planning, it is advisable to hire a financial consultant that can assist you in completing your investing requirements. A reliable financial consultant can prepare all required documents and give advice concerning the various options available. It is important to remember that although shareholders’ meetings can be helpful, they do not provide all of the necessary information regarding the business and the future prospects of the corporation. It is therefore essential to obtain all of this information directly from the company and not from a broker or proxy agent.
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Advocate Rahul Dev is a Patent Attorney & International Business Lawyer practicing Technology, Intellectual Property & Corporate Laws. He is reachable at rd (at) patentbusinesslawyer (dot) com & @rdpatentlawyer on Twitter.
Quoted in and contributed to 50+ national & international publications (Bloomberg, FirstPost, SwissInfo, Outlook Money, Yahoo News, Times of India, Economic Times, Business Standard, Quartz, Global Legal Post, International Bar Association, LawAsia, BioSpectrum Asia, Digital News Asia, e27, Leaders Speak, Entrepreneur India, VCCircle, AutoTech).
Regularly invited to speak at international & national platforms (conferences, TV channels, seminars, corporate trainings, government workshops) on technology, patents, business strategy, legal developments, leadership & management.
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