What Is a Blank Check Company?

A blank check company is a publicly-traded, developmental stage company that has no established business plan. It may be used to gather funds as a startup or, more likely, it has the intent to merge or acquire another business entity. Blank check companies are speculative in nature and are bound by Securities and Exchange Commission Rule 419 to protect investors.

KEY TAKEAWAYS

  • Blank check companies do not have established business plans.
  • This type of company is often used to gain funds, with the plan to merge with or acquire another business.
  • SPACs are a type of blank check company.1

How a Blank Check Company Works

Blank check companies are often considered penny stocks or microcap stocks by the SEC. Therefore, the SEC imposes additional rules and requirements of these companies. For instance, they must deposit the raised funds into an escrow account until shareholders officially approve an acquisition and the business combination is made. Also, these companies are not allowed to use certain exemptions under Regulation D of the Securities Act of 1933. Rule 504 of Regulation D exempts companies from registration of securities in a 12-month period for offerings up to $10 million.2 The SEC prohibits blank check companies from using Rule 504.3