A:

A blank-check company is a development-stage company that either does not have an established business plan or its business plan is based around a merger or acquisition with another company or companies.

Blank-check companies generally are speculative and often fall under what the Securities and Exchange Commission (SEC) defines as "penny stocks", or speculative securities that trade for fewer than $5 per share.

A popular type of blank-check company is a special purpose acquisition corporation (SPAC). The founder of a SPAC pools money from investors and he or she may contribute to the SPAC to form a blank-check company with the sole purpose of acquiring another company or companies.

Investors do not have knowledge of how their money will be spent, so they issue blank checks to the SPAC. In turn, the SPAC must receive shareholder approval for all acquisitions and 80% of investor funds must be used in any single deal. If the SPAC fails to find a shareholder-approved deal within two years of creation, it is liquidated and the SPAC's founder loses the investment. Blank-check companies present investors with an alternative similar to private equity.

For more on this topic, read SPACs Raise Corporate Capital, Mergers and Acquisitions: Introduction and The Lowdown on Penny Stocks.

This question was answered by Richard C. Wilson.

RELATED FAQS
  1. What's the difference between a merger and an acquisition?

    Learn about the difference between mergers and acquisitions. Discover what factors may encourage a company to merge or acquire ... Read Answer >>
  2. Why are the terms 'merger' and 'acquisition' always used together if they describe ...

    Learn about mergers and acquisitions and how these two corporate actions differ based on the size and participation of the ... Read Answer >>
  3. What is the difference between a merger and an acquisition?

    Read about the legal and practical differences between a corporate merger and corporate acquisition, two terms often used ... Read Answer >>
  4. Are acquisitions only for large companies?

    Learn how mergers and acquisitions, despite what the media portrays, actually take place more often among small companies ... Read Answer >>
  5. Why do some mergers and acqusitions fall through?

    Most merger and acquisition (M&A) activities are carried out successfully, but from time to time, you will hear that ... Read Answer >>
  6. In M&A how does an all-stock or all-cash deal affect the equity of the buying company? ...

    Mergers and acquisitions (M&A) are forms of corporate restructuring that are becoming increasingly popular in the modern ... Read Answer >>
Related Articles
  1. Investing

    Key Players In Mergers And Acquisitions

    Strategic acquisition is becoming a part of doing business. Discover the different types of investor groups involved.
  2. Investing

    The Merger - What To Do When Companies Converge

    Learn how to invest in companies before, during and after they join together.
  3. Investing

    Acquire A Career In Mergers

    This exciting sector demands a lot from its advisors. Are you up for it?
  4. Investing

    What Merger And Acquisition Firms Do

    The merger or acquisition process can be intimidating. This is why merger and acquisition firms step in to facilitate the process.
  5. Markets

    What's an Acquisition?

    In corporate terms, an acquisition is the purchase of a company or the division of a company. Some acquisitions are paid in cash, while others are paid with a combination of cash and the acquiring ...
  6. Markets

    When Is A Penny Stock Not A Penny Stock Anymore?

    Although investors may shy away from them, many don’t understand that there is actually more to these misunderstood securities than one might think.
  7. Investing

    What Investors Can Learn From M&A Payment Methods

    How a company pays in a merger or acquisition can reveal a lot about the buyer and seller. We tell you what to look for.
  8. Investing

    The Merger: What To Do When Companies Converge

    Mergers occur when it’s beneficial for two companies to combine business operations. The question is; if you’re invested in a company that’s involved in a merger, will it benefit you?
  9. Markets

    Spotting Sharks Among Penny Stocks

    To protect yourself from an attack, don't swim in this ocean.
  10. Trading

    How To Buy Penny Stocks (While Avoiding Scammers)

    Penny stocks are risky business. If want to trade in them, here's how to preserve your trading capital and even score the occasional winner.
RELATED TERMS
  1. Special Purpose Acquisition Company - SPAC

    A publicly-traded buyout company that raises money in order to ...
  2. Blank-Check Company

    A company in a developmental stage that either doesn't have an ...
  3. Mergers And Acquisitions - M&A

    A general term used to refer to the consolidation of companies. ...
  4. Acquisition Premium

    The difference between the estimated real value of a company ...
  5. Swap Ratio

    The ratio in which an acquiring company will offer its own shares ...
  6. Merger Mania

    A period of time with significant merger and acquisition activity ...
Hot Definitions
  1. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  2. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  3. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  4. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  5. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  6. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
Trading Center