Also known as blank-check companies, these companies have no business operations. The company is formed to raise funds in an initial public offering (IPO). It then uses the funds to acquire a private company, effectively bringing it to the public market.

The SPAC IPO process is faster and requires fewer steps. Instead of taking six to nine months like a traditional IPO, a SPAC IPO can be accomplished in weeks. It also provides less risk than a traditional IPO. And the acquired company doesn’t need to find investors. SPAC investing provides the money and the investor demand. This allows a direct market listing.

As with any IPO, the SPAC sponsor files a registration statement with the SEC on Form S-1. The registration statement is relatively simple compared to traditional IPO registration statements, since the SPAC has no operational business or detailed financial statements. The SPAC then negotiates underwriting and ancillary agreements, including a trust agreement governing the proceeds raised in the IPO.

After SEC clearance, there is a roadshow to interested investors where the SPAC’s management team presents its vision for the SPAC. The management team sells themselves and their experience, rather than a specific business operation.

Establishing a web presence is critical to establishing a primary source of information for investors, as well as meeting SEC requirements. Public companies, including SPACs, are subject to specific SEC regulations and exchange rules that govern what, when, and how content can be posted publicly on their websites. Financial statements, including those filed with your 10-K, 10-Qs, and any 8-Ks containing updated interim or revised financial statements, must be posted on your company’s website. The SEC requires this so that investors will be able to more efficiently analyze your financial data, and data of other companies.

When the merger is complete, the website can remain live and operate under the new business combination, continuing to benefit from the established online presence. The ability to simply transition the website aides in business continuity and reduces the work associated with starting from scratch.

Following the IPO, proceeds are placed into a trust account and the SPAC typically has 18-24 months to identify and complete a merger with a target company. If the SPAC does not complete a merger within that time frame, the SPAC liquidates and the IPO proceeds are returned to the public shareholders.

Once a target company is identified and a merger is announced, the SPAC’s public shareholders may alternatively vote against the transaction and elect to redeem their shares. If the SPAC requires additional funds to complete a merger, the SPAC may issue debt or issue additional shares, such as a Private Investment in Public Equity (PIPE) deal.

Following the final capital raise, the SPAC can now take the target company public. Even though the SPAC is already public and has filed with and been approved by the SEC, the target company also needs to gain approval from regulators. In other words, the target company does not necessarily face fewer regulatory requirements when going public via a SPAC merger instead of a traditional IPO — it’s just a shorter timeline.

Once approved, the ticker changes to reflect the name of the acquired company and it starts trading as a typical public company.

Legal issues and considerations for SPACs can include:

• Securities Laws. The SPAC must comply with securities laws in connection with its S-1 registration statement filed with the SEC.

• Proxy Statement. On the business combination with the target company, the SPAC has to file with the SEC a proxy statement soliciting shareholder approval. Lawsuits have been brought against SPACs alleging deficiencies and misstatements in the proxy statement.

• D&O Insurance. The SPAC will want to obtain appropriate Director’s and Officer’s insurance coverage, with limited exclusions.

• Projections. The projections offered about the target business need to be carefully prepared and caveated.

• Protections for Directors and Officers. Appropriate protections for directors and officers need to be built into charter and indemnification agreements.