Some of these businesses have bet game stock prices that are in the double-digits, or even triple-digits, on a per-share basis. A number of the most famous will often be found on the OTCQX Exchange, which classifies businesses into tiers based mostly on their stock price. For example, a business must maintain a stock price of $1.00/share for at least ninety days in order to be considered for inclusion in the premier tier, as well as satisfy other specific reporting criteria. These businesses are required to file reports with the SEC and the FDIC, although the regulations are not as rigorous as those of larger corporations.
The next level down is the OTCQB markets, which do have more-than-zero criteria, which are the next step down after that. In order to be listed, businesses must first pay a one-time application cost of $2,500 as well as an annual listing fee of $12,000. At the very least, the business must be able to effectively trade for at least a penny a share and must not be in the process of declaring bankruptcy. They must also file reports with the Securities and Exchange Commission and the Federal Deposit Insurance Corporation, but the restrictions are less severe than those imposed on firms listed on major indexes.
The OTCQB tier is where you could find yourself in some serious problems very quickly. One reason is that here is where you will begin to discover “Shell businesses,” as the name implies. Publicly traded shell businesses that simply exist on paper and do not conduct any real commercial activities are known as shell companies or shell corporations.
Another point to mention is that these are the kinds of businesses where things may get very speculative. Many of them are what I refer to as “concept businesses,” which refers to individuals or groups that have come up with an idea that, if successful, has the potential to generate a significant amount of money. The majority of the time, the concepts fail.
To be able to sell their equities in a more-or-less legal manner for the main purpose of generating money is the major aim of shell companies and concept businesses seeking to be listed on a stock exchange. If your intention is to purchase and hold with a business like this, you are essentially an investment in the original concept of what the company intends to accomplish in the future. To some extent, it’s comparable to being accepted as a partner.
The majority of the time, these businesses need the funds just to have any hope of getting their ideas off the ground. Because of this, they will be included in this index, and the business will issue additional shares of stock, which will be offered to the general public or to an investment company…or a pseudo-investment company…through a direct offering.
Increasing the number of outstanding stock shares for the business will be accomplished via the method of either flooding the market with additional shares or directly selling them to an entity. Because the number of shares has risen, but the basic underlying worth of the business has not changed much (apart from day-to-day fluctuations), the stock price will usually decline when more shares are introduced to the market. After all, you now own a smaller portion of a business that has basically been the same since its inception.
This idea is referred to as “Stock Dilution” in more severe circumstances. This is due to the fact that you are diminishing the worth of the existing stockholders.
Additionally, when given directly to an organization, these extra shares are often sold at a significant discount to the prevailing market price. The aim of the business that purchases them is sometimes to hang on to these shares for a lengthy period of time (as genuine institutional investors would do), but other times it is to sell them for a large profit very immediately.
When this occurs, everyone benefits in the long run. With the exception of the stockholders.
When a business sells its shares to an institution, the company benefits because it receives a direct infusion of cash from the institution that purchased the shares. The institution that purchases the shares often wins since they are receiving such a substantial discount via the direct offering that the stock price will usually not go below that level before they can sell all of the shares they purchased.
The existing shareholders (who are, legally, the company’s owners) suffer a loss since they do not get any more shares and the shares that they do possess are worth less than they were before the restructuring.
To long last, we arrive at the OTC Pink market, often known as “Pink Open Market” or “Pink Sheets” for short. My advise to anyone considering this is to keep in mind that pink is just a shade or two away from red!
This group of businesses is exempt from any reporting or disclosure obligations, and many are in default, severe financial difficulty, or (like in the case of SHLDQ) have gone bankrupt completely without a trace. In the last few instances, these firms aren’t even excellent enough to qualify as Shell Companies; rather, they are businesses that have unquestionably failed.