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Definition: Blank Check Company
A blank check company is a company in developmental stage which has no specific business plan or purpose or it has indicated that it wants to engage in a merger or an acquisition with an entity or a group of companies.
They are also known as “Special Purpose Acquisition Company” or SPAC. It is created so that funds can be raised to finance a merger or acquisition opportunity within a set timeframe. Blank check companies issue “penny stocks” because they are generally speculative and basically asking investors for trust and money when they have not yet defined their operations and how they will return money to investors. As investors do not know how their money will be used so they issue blank check to these companies. In return the blank check companies should take approval from shareholders on how to use funds and 80% of funds must be used in any single deal.
The SEC has strict guidelines because of the nature of blank check companies and does not allow some of the exemptions for the registration requirements allowed to other companies when selling their securities. Under the Securities Act, 1933 blank check companies are required to disclose the full terms and conditions of their offering and also place the funds received from selling their offering in an escrow amount until utilised.