Basics of Accounting Explained via a SPAC -
Basics of Accounting Explained via a SPAC -
Bookkeeping, the General Ledger, and Financial Statements
Bookkeeping, the General Ledger, and Financial Statements
For the purposes of demonstrating the application of the ASC-FASB accounting system in its most basic form, the following article documents the capitalization of a Special Purpose Acquisition Company (“SPAC”) from inception through its initial public offering. A SPAC is what is known as a non-Rule 419 blank check company, that is, a shell company that is created solely for the purposes of: (i) raising money via an initial public offering ("IPO") and (ii) depositing that money into a trust account until (iii) the identification of a company with which to merge. In other words, a SPAC is a new company consisting of only a management team and cash. Its sole purpose is to seek, identify, and merge with another company that is already a going concern.
The tabular data provided herein is the foundation of the more advanced tabular data that one would find in a typical SPAC registration statement filed pursuant to the instructions provided by Form S-1 which documents various data about the company, its securities being offered, its management, etc., as well as the accompanying prospectus which documents a subset of that data and is used by the bookrunner and underwriters effecting the IPO of its common stock or other securities.
For the purposes of context and pursuant to the SEC’s new rule (17 CFR 229.1600), a SPAC is what is known as a non-Rule 419 blank check company. Most simply this can be understood as a shell company that is created solely for the purposes of: (i) raising money via a primary offering of securities for (ii) the identification of a company with which to merge, and for which (iii) the proceeds will be returned to investors absent an ultimate “business combination, such as a merger, consolidation, exchange of securities, acquisition of assets, reorganization, or similar transaction, with one or more target companies within [a] specified time frame”. In other words, a SPAC is a new company consisting of only a management team and cash. Its sole purpose is to seek, identify, and merge with another company or to acquire assets.
The SPAC’s initial capital structure and other basic economic terms will be known at the beginning of the deal. For example, the equity capital contribution by the sponsor (referred to as the founder shares or the sponsor’s promote) will be devised; beyond equity, the SPAC’s various expenses can be documented, such as, the cost of incorporation, counsel’s fees, the listing fees, the underwriters’ commission or discount, and other IPO related fees. Finally, the anticipated size of the IPO will permit the documentation of the SPAC’s capitalization.[1] Beyond this basic balance sheet, the pricing and denomination of securities also will be known, such as the price per unit, the other securities bundled with the common stock in the units as well as the terms of those securities, the amount of funds held in trust, the redemption period, etc.
This example presumes a legal incorporation fee of $350 and an initial capitalization of $25,000 with the goal of effecting an initial public offering of a SPAC version of a blank check company for $100 million. Statistically these would be not unusual on the smaller side of SPAC market practice through the 2021 peak of SPAC IPOs.
The primary source of bookkeeping is the Journal of Original Entry which documents all financial transactions of the company as they occur. (Documenting transactions as they occur is known as the accrual method of accounting.)
|====================================================|
| Journal |
| of |
| Original Entry |
| |
|====================================================|
| Transaction 1: |
| Date: April 1, 2024 |
| Description: Paid $350 in legal fees |
| for the incorporation |
| of the SPAC. |
| Debit: Professional Services (Expense) - $350|
| Credit: Cash (Asset) - $350 |
|----------------------------------------------------|
| Transaction 2: |
| Date: April 15, 2024 |
| Description: Issued 2,500,000 shares of |
| common stock for par value of |
| $0.0001, receiving $25,000 |
| in cash. |
| Debit: Cash (Asset) - $25,000 |
| Credit: Common Stock (Stockholders’ |
| Equity) - $25,000 |
|----------------------------------------------------|
NOTE: One should verify that the consideration received for the issued common stock is not less than its par value (which is necessary only depending on whether the applicable corporate law requires that the company’s common stock have a par value), and one must separate any amount paid in excess of the par value as a separate credit to excess capital paid-in. Thus in many cases, instead of a debit to the cash account and a credit to the stockholders’ equity account, the ledger will evidence a debit to the cash account and credits to two distinct sub-accounts for stockholders’ equity - common stock, credited at par value of the issued securities, with the balance of funds being represented in another sub-account credit entry as excess capital paid-in.
For the purposes of financial planning as well as preparing financial statements for describing the company’s value, the transactions recorded in the Journal of Original Entry must be classified into separate account types. For smaller companies each account type might be considered like a book chapter while larger companies would have a sufficient number of transactions to keep a separate book per each account type. A chart of accounts (essentially an index or a table of contents) provides easy reference to the location of transactions by account type, i.e., the book number or chapter number.
Standard practice is to bifurcate the accounts into Balance Sheet Accounts and Income Statement Accounts. The former is a periodic and cumulative representation of the value of the company’s various accounts whereas the Income Statement captures certain account values in each period. The values are then transferred to and stored in the Balance Sheet with the Income Statement accounts being reset to zero in the new accounting period. For example, typical Balance Sheet account types and their standard associated sub-accounts are:
ASSETS (Cash, Accounts Receivable, PP&E, and Pre-paid Expenses);
LIABILITIES (Accounts Payable, Loans Payable), and
STOCKHOLDERS’ EQUITY (Common Stock and Retained Earnings).
The non-cumulative Income Statement accounts and typical sub-accounts are:
OPERATING REVENUES (Sales and Service Fees);
OPERATING EXPENSES (Professional Services, Salaries, Rent, Depreciation);
NON-OPERATING REVENUE & GAINS (Investment Income and Gains on Sales of Assets); and,
NON-OPERATING EXPENSES & LOSSES (Interest Expense, Loss on Sale of Asset).
These accounts and their data can be represented in various formats, such as: T-accounts and the General Ledger (and if applicable, its sub-ledgers). In the way that a scientific chart assists a reader in comprehending data, the classification of data into accounts and its recording in various formats assists the reader in comprehending the data and thus the financial status and ultimately value of the company.
Every transaction must be recorded in a method that is known as double-entry recording. Since accounting is ultimately concerned with the algebraic equation Assets = Liabilities + Stockholders’ Equity + Revenue – Expenses, each recorded transaction will belong to an account on one side of the equation as well as a representation of same in a separate account on the other side of the equation. Likewise, within the journal of each account, transactions always are recorded with a certain formatting of debits on the left-side of the column, represented as a T, and credits on the right-side. Thus, one must memorize where the account belongs in the accounting equation so as to know whether a debit or a credit might be an increase or a decrease in actual financial value. As with learning PEMDAS for the order of operations in algebra (parentheses, exponents, multiplication, division, addition, subtraction), the double-entry method of recording becomes more intuitive with review of various and varying examples.
Pursuant to the basic, algebraic accounting equation,
Assets = Liabilities + Equity + Revenue – Expenses, the company’s ultimate financial statement accounts and their native format (in green) can be represented as the following table provides.
====================================================
| Account | "Normal" | To | To |
| Type | Balance | Increase | Decrease |
====================================================
|ASSETS |Debit | Debit | Credit |
----------------------------------------------------
|LIABILITIES| Credit| Credit | Debit |
----------------------------------------------------
|STOCK- | Credit| Credit | Debit |
| HOLDERS' | | | |
| EQUITY | | | |
----------------------------------------------------
|REVENUES* | Credit| Credit | Debit |
----------------------------------------------------
|EXPENSES |Debit | Debit | Credit |
----------------------------------------------------
*Revenues ultimately will be included as a part of the stockholders’ equity at the end of any given accounting period which makes it easier to remember that it is an account with a "default" balance of a credit.
The above table is meant to evidence the "default" representation of each account (in green) and thus which type of record entry will cause either an increase or a decrease to the financial value for that account. The positive or negative adjustment which results from a debit or a credit entry is a characteristic of each account type which can be known from an account’s location in the algebraic formula.
Ultimately, this type of double-entry bookkeeping is from a certain perspective of the company, which is a legal person distinct from its claimants – i.e., its stockholders and lenders. Thus, accounting records can most simply be thought of as being primarily concerned with the value of the company to either: (i) its stockholders at book value or (ii) its stockholders and creditors, together. Hence, the Asset accounts (representing the whole value of the firm, which consists of both claims by stockholders and lenders) are debits (what the company owes to them) while on the other side, the value of the firm is bifurcated by claims of stockholders and lenders and will normally be credits (what others provided to the company). Expenses are subtracted in the standard algebraic accounting formula, so they are notated with debits instead of credits.
For stockholders and creditors, together, the Assets will provide a value of the company which is similar to the Total Enterprise Value except that equity is accounted for at the paid-in rather than the present market value. For stockholders, the algebraic equation can be rearranged whereby Equity = Assets – (Liabilities + Expenses). The resulting book value is the most basic valuation of the legal entity, i.e. what would remain if all claims on the company (borrowings and trade claims, etc.) were settled.
Modern vernacular for the bank card payments system can be confusing. For some, it may be helpful to think of the origin of these words so as to comprehend the perspective of the company’s narrative which the accountant documents. Both originate from Latin: debere, meaning to “owe” or “be indebted”, and credere, meaning to “believe” or “trust”. Knowing this also helps one understand the abbreviations of DR for debit and CR for credit. Thus memorizing each account type’s native representation is as simple as remembering that the Asset accounts document the complete value of the company which ultimately is owed to its claimants, i.e., what the company owes to its stockholder and creditor claimants. Afterall, a company is merely an entity controlled by fiduciaries on behalf of the company’s ultimate beneficiaries – i.e., the stockholder claimants (and in limited and rare, extraordinary legal cases, the creditor claimants). For the grand conclusion of an entity’s Assets, debits are thus a positive value (representing all amounts owed to the various participants). On the other side of the equation, the Liabilities and Stockholders’ Equity accounts represent the company’s documentation of creditor claimants, i.e., the debt investors and the equity investors. Thus, credits are a positive value (representing the value received from those believing in the economic prospects of the company). Revenue is ultimately for the stockholders’ account, so it matches. Finally, the equation provides that expenses should be subtracted, so a positive value is represented as a debit instead of a credit.
Building upon the data from the Journal of Original Entry, the General Ledger provides an error-proofing method of recording much of the same information in a more consolidated and organized manner. For example, the formatting of the General Ledger ensures that one might be less likely to omit a debit-credit-pairing account for each recorded transaction because the transaction recording requires that the effects to the account and its accompanying account be recorded on the same line of entry in the journal. Thus, this error-proofing feature of recording transactions into a consolidated journal such as the General Ledger can be contrasted with an individual account journal, such as a T-account, which provides a more obvious understanding of an account’s actual balance at any given moment but does not provide a side-by-side debit-credit-accounts comparison.
The accounts documented by the general ledger are typically matched in pairs with the previously discussed accounting debit and credit accounting entries that complement eachother. ing debit or credit entry. These debits and credits ultimately are organized according to the account type and its place in the standard accounting equation formula.
Considering the foregoing, a very simple general ledger for a blank check might at first appear as in the following table.
=================================================================
| Date | Account | Description | Debit ($) | Credit ($)|
================================================================
|1-Apr-2024 |Prof. Svcs.|Fees pymt. | 350 | |
| | Fees | incorporation| | |
----------------------------------------------------------------
| | Cash | idem. | | 350 |
----------------------------------------------------------------
| | | | | |
----------------------------------------------------------------
|15-Apr-2024| Cash |Rec'pt of | 25,000| |
| | | funds | | |
----------------------------------------------------------------
| | Common | Issuance | | 250 |
| | Stock (Par| of Common | | |
| | Value) | Stock | | |
________________________________________________________________
| | Additional| Idem. value | | 24,750 |
| | Paid-In | received in | | |
| | Capital | excess of | | |
| | | Par Value | | |
----------------------------------------------------------------
In contrast to the General Ledger (and as applicable, its sub-ledgers), T-accounts are a representation of the company’s transactions in a manner organized by accounts. Thus, from a potentially lengthy Journal of Original Entry with many, seemingly random transactions, keeping duplicate records organized by account type and represented in a T-account format (which simply means a column of left-side debits and right-side credits) provides order and clarity into the company’s individual accounts and their real financial value balance at any given moment. Like charts explaining data, T-accounts and the General Ledger represent similar data for different purposes.
Thus, for example, at incorporation, a capital contribution by the stockholder-incorporator would be documented as a debit to the Asset account Cash and a credit to the Stockholders’ Equity account Common Stock. Payment of legal fees would be documented as a credit to reduce the Cash account balance and a debit to the Income Statement account Professional Services Fees. Remember that at the end of the accounting period, the Income Statement accounts will be closed and transferred to the permanent (or real) accounts of the Balance Sheet.
A SPAC that was incorporated with $25,000 of equity capital at a cost of $350 could be represented with the following T-accounts.
|==============================|
| ASSETS |
| -Cash- |
|==============================|
| debit | credit |
|------------------------------|
| $25,000 | |
|-------------|----------------|
| | $350 |
|------------------------------|
The table above documents the increase in cash as a result of receiving the initial capital contribution of $25,000 followed by a decrease in cash of $350 which resulted from the payment of the legal incorporation fees. Each entry must have a corresponding paired entry. Thus the $25,000 debit entry is paired with the credits to Stockholders’ Equity and Additional Paid-In Capital accounts. The $350 credit entry is paired with the $350 debit to Expenses.
|==============================|
| STOCKHOLDERS' EQUITY |
| -Common Stock- |
|==============================|
| debit | credit |
|------------------------------|
| | $250 |
|------------------------------|
The table above documents the par value amount of subscribed capital. Note that this is combined with the additional paid-in capital credit entry to evidence, together, the funds available in the -Cash- account at the instant moment of incorporation (for the purposes of pedagogic simplicity, this explanation presumes that the Professional Services Fees are settled during a different period).
|==============================|
| STOCKHOLDERS' EQUITY |
| -Additional Paid-in Capital- |
|==============================|
| debit | credit |
|------------------------------|
| | $24,750 |
|------------------------------|
STOCKHOLDERS’ EQUITY
The table above documents the amount of paid-in capital that is in excess of par value. Note that the combination of this amount, together with the stockholders’ equity credit entry, matches the actual account balance for the -Cash- account thus evidencing the funds available just at the time of incorporation.
|==============================|
| EXPENSES |
| -Professional Services Fees- |
|==============================|
| debit | credit |
|------------------------------|
| $350 | |
|------------------------------|
EXPENSES
The table above documents the legal incorporation fee. Note that a simultaneous credit entry was made to the -Cash- account to evidence a reduction in funds available to the company as a result of the transaction.
NOTE: Each transaction record must be entered according to the rule of double-entry. Thus for every record to any particular account, another record must be made to an account that matches within the context of the accounting equation. Thus, any particular debit to an account will have a matching or a group of matching credit(s) to another account or accounts that are related within the context of the standard accounting equation. In the stockholders' equity example, the $25,000 -Cash- account debit was matched with credits to -Common Stock- and -Additional Paid-in Capital-. (The bifurcation into two separate credits documents the effects of the quirk of par value, although it could have simply been a single account credit to a simplified -Common Stock-.
Prior to preparing financial statements, the accounts will need to be closed and the final balances of each account type documented in what is known as a Trial Balance. The sum of these accounts on both the debit and credit side should be equal to each other – as in this example, 25,350. This helps avoid errors. The following table represents the Trial Balance.
========================================
| Account | Debit ($) | Credit ($) |
========================================
|ASSETS | | |
----------------------------------------
|--Cash | 25,000 | 350 |
----------------------------------------
|LIABILITIES | - | - |
----------------------------------------
|STOCKHOLDERS'| | |
| EQUITY | | |
----------------------------------------
| --Common | | 250 |
| Stock | | |
|---------------------------------------
| --Add'l | | 24,750 |
| Paid-In | | |
| Capital | | |
----------------------------------------
|REVENUES | - | - |
----------------------------------------
|EXPENSES | 350 | - |
----------------------------------------
| | | |
----------------------------------------
|Total | 25,350 | 25,350 |
----------------------------------------
The above Trial Balance is the result of the consolidation of the balances from the sub-accounts to the macro accounts first introduced supra as the algebraic representation of the balance sheet: ASSETS = LIABILITIES + EQUITY + REVENUES – EXPENSES.
The company’s financial statements present the status of the company’s financial books from a certain period. Like photographs, a series of financial statements over several periods provides a moving picture of the company’s financial status.
Income Statement
|===============================================================|
| Revenue | - |
| Total Revenue | - |
| Expenses | |
| -Prof. Svcs. Fees | 350 |
| Total Expenses | 350 |
| Net Income | -350 |
|---------------------------------------------------------------|
Balance Sheet
|===============================================================|
| Assets | |
| Cash | 24,650 |
| Total Assets | 24,650 |
| | |
| Liabilities & Equity | |
| Liabilities | - |
| Total Liabilities | - |
| | |
| Stockholders' Equity | |
| Common Stock | 250 |
| Additional Paid-In Capital | 24,750 |
| Retained Earnings (Deficit) | (350) |
| Total Stockholders' Equity | 24,650 |
| | |
| Total Stockholders' | |
| Equity & Liabilities | 24,650 |
|---------------------------------------------------------------|
Statement of Stockholders’ Equity
|===============================================================|
| Common Stock | - |
| Beginning Balance (1-Jan-2024) | - |
| Issuance of Common Stock | 250 |
| Ending Balance (30-Apr-2024) | 250 |
| | |
| Additional Capital Paid-In | |
| Beginning Balance (1-Jan-2024) | - |
| Ending Balance (30-Apr-2024) | 24,750 |
|---------------------------------------------------------------|
Cash Flow Statement
|===============================================================|
| Cash Flows from | |
| Operating Activities | |
| Legal fees expenses | 350 |
| | |
| Cash Flow from Financing | |
| Activities | |
| Issuance of Common Stock | 250 |
| Additional Paid-In Capital | 24,750 |
| Net Cash Provided by | 25,000 |
| Financing Activities | |
| Net Increase in Cash | 25,000 |
| Cash at Beginning of Period | 0 |
| Cash at End of Period | 24,650 |
|---------------------------------------------------------------|
Given this case of a domestic issuer preparing for a primary offering of its securities, the issuer’s financial records would evidence a company incorporated just prior to its fiscal year end close. Regulation S-X, Article 8 Financial Statements of Smaller Reporting Companies applies since Regulation S-K § 10(f)(1) provides that an issuer meeting certain criteria and having revenues of less than $100 million and either (i) no public float or (ii) public float of less than $700 million is a Smaller Reporting Company. Thus, the issuer must produce an audited balance sheet as well as audited statements of comprehensive income, cash flows, and changes in stockholders’ equity as of a date within 135 days because it has existed for a period of less than one fiscal year. (A fiscal year is defined as “the annual accounting period”.) Issuers with a longer financial history might need to adhere to different reporting standards.
In anticipation of the IPO, the financial statements and other tabular data can be captured and represented in a well-formatted spreadsheet which will make it easier to prepare the quantitative data for the prospectus. Original documentation such as receipts, bank statements, professional services contracts, etc., also should be organized and stored in a manner which will be readily available and presentable for the SPAC’s auditor. Considering the various types of securities that might be issued and their differing treatments under the accounting rules, management and their advisors also should use this opportunity to evaluate their accounting methodologies with the goal of ensuring that disclosure will be suitable, for example, per the guidance of Accounting Policies; Cautionary Advice Regarding Disclosure, Securities Act Release No. 33-4080, Exchange Act Release No. 34-45149, 66 Fed. Reg. 65013 (Dec. 17, 2001) (urging that disclosure reporting should better connect MD&A discussions of risk and uncertainties with how those phenomena might affect financial reporting).
This example made assumptions from a survey of various forms of SPACs. For example, most sell their common stock in an IPO via bundling their common stock with other securities known as warrants and rights; the resulting security offered to the marketplace is thus referred to as a unit. After a brief period of time post-IPO, the securities, which together comprise each unit, will begin trading separately. Units are bespoke securities instruments which consist of the SPAC’s common stock and one or more other securities, for example, some type of a warrant and/or a right. Warrants are a special name for options contracts with the issuing company as the counterparty (rather than a random third-party in the marketplace). Warrants also can be pursuant to various terms. Similarly, rights are securities that represent a contract with the issuing company, in this case the SPAC. The right is thus an instrument that affects pricing and liquidity formation in the marketplace. For example, a right denominated as 1/10th of one share of common stock would be redeemable for one share of common stock when bundled and tendered to the issuer company with nine other of same rights, that is to say, a bundle of ten rights would be exchangeable for one share of common stock when rights are denominated in 1/10th. Thus the effect is to encourage a certain mannerism of capital formation. Not all SPACs have warrants and rights, and many SPACs offer securities on various terms which change as the supply and demand, as well as various other risk elements in the dynamic securities markets, fluctuate.
The SPAC's most significant expenses result from the costs of effecting its IPO and are accommodated by the capital contribution that is made either just prior to or contemporaneously with the IPO. This capital contribution, after the initial capital contribution made at the time of incorporation, typically might be in the form of unregistered warrants, unregistered common stock, unregistered rights, or any combination of same in the form of unregistered units, either of which will be typically substantially the same as the securities that will be publicly offered. Note that the capital from the IPO is in the form of redeemable securities which affects how this cash is represented in the financial statements while this second placement round of capital by the sponsors typically is not redeemable pursuant to a separate letter agreement.
To conclude, at the time of incorporation, a SPAC provides an excellent opportunity to review the basics of an accounting system. Typically, the capital contribution at the moment of incorporation might be as small as in this example to several hundred thousands of dollars with the second placement round constituting an amount equal to 2.5%-5% of total capital publicly raised via the IPO. (According to the Commission in its recent rulemaking concerning SPAC practice, 5% - 5.5% would be the anticipated amount for the sponsor's placement.) The proper documentation of the second placement round and other events such as the recording of capital received in connection with the IPO are beyond the scope of this article and are subject to advanced FASB-ASC accounting rules (for example whether securities are redeemable and if so how they should properly be accounted for in the financial statements).
NOTE: Due to the unique feature of SPACs which provides its stockholders with the option to redeem their shares of common stock in exchange for the cash originally paid for same, for example upon the expiration of its allotted time of existence or at the time that the merger is presented for stockholder ratification, the proceeds received from the SPAC’s IPO usually must be accounted for as redeemable equity rather than permanent equity pursuant to FASB ASC rule ASC 480-10-S99-3A. See also Regulation S-X 17 CFR 210. This is a simple explanation. In practice, since SPAC securities vary depending on the specific SPAC and its constituent agreements, e.g., certificate of incorporation and other investment rights agreements, SPAC accounting can vary, especially when considering that most IPOs consist of units comprised of multiple securities which later separate and trade separately. The exhibits to the second part of the S-1 registration statement per Reg. S-K 601 provide this information.
It is important to verify with counsel at this point that the SPAC will not qualify as a Rule 419 governed blank check company. Presuming the status of a blank check strategy, i.e., “a development stage company that has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person”, then the test is simple: the company must not be issuing what is defined as “penny stock” per The Exchange Act of 1934 Rule 17 CFR § 240.3a51-1. The Commission references a historical discussion of the requirement for at least $5,000,000 in assets within the context and seems to clarify that in the case of a firm commitment IPO, the requirement might be satisfied without consideration of future redemptions. Special Purpose Acquisition Companies, Shell Companies, and Projections, Securities Act Release No. 33-11048; Exchange Act Release No. 34-94546; Investment Company Act Release No. IC-34549 (Mar. 30, 2022), at 9 n.12, 87 Fed. Reg. 93, (May 13, 2022) (referencing the following language, “Questions have been raised with respect to whether an offering by a blank check issuer that is underwritten on a firm commitment basis, with the proceeds to exceed $5 million, must comply with Rule 419. Although the closings for these offerings typically do not occur for a short period of time following effectiveness of the registration statement and no audited balance sheet could be produced prior to that time, the Commission has been urged to permit issuers to use the proceeds of such firm commitment underwriting in calculating the issuer's net tangible assets, solely for purposes of determining whether compliance with the blank check rule is required. An issuer involved in firm commitment offerings typically can secure an audited balance sheet following closing in order to provide support for its level of net tangible assets, and such issuers have indicated that they are willing to file this information under cover of Form 8-K.[citation omitted] The Commission has determined that an issuer that otherwise would be subject to Rule 419 will be permitted to aggregate the proceeds of a firm commitment underwriting[citation omitted] with its other tangible assets solely in order to determine whether the offered security must comply with Rule 419, provided that the issuer files an audited balance sheet reflecting net tangible assets (including the proceeds of the offering) in excess of the threshold promptly after the closing date and files such balance sheet under cover of Items 5 and 7 of Form 8-K. Filing of the required Form 8-K will be monitored by the Commission staff. Of course, an offering that is not a bona fide firm commitment may not be used as a device to evade compliance with Rule 419. A broker-dealer effecting transactions in a security of such an issuer must, however; continue to comply with Rules 15g—2 through 15g-6, and with Rule 15g-9.[citation omitted] Regardless of the anticipated proceeds of an offering, in order for a broker-dealer to rely on the exclusion from the definition of penny stock based on the issuer's net tangible assets for the purpose of these rules, the broker-dealer must obtain and review audited financial statements of the issuer demonstrating the issuer's net tangible assets and have a reasonable basis for believing such statements are accurate in relation to the date of any such transactions, as required by Rule 3a51-1(g)(3).”).
Contributors
The administrator
Last Maintained
Jan. 2025
See also SPAC and Accounting.