Over the past two years, the U.S. public securities markets have experienced an

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FACT SHEET
SPACs, Shell
Companies, and
Projections:
Proposed Rules

U.S. SECURITIES AND EXCHANGE COMMISSION  PAGE 1 OF 3

Why This Matters
Over the past two years, the U.S. public securities markets have experienced an
unprecedented surge in the number of initial public offerings by SPACs. The rapid increase
has heightened investor protection concerns about various aspects of the SPAC structure
and the increasing use of shell companies as mechanisms for private operating companies
to become public companies. The surge in SPAC initial public offerings also has renewed
concerns about the use of projections, particularly with respect to business combination
transactions in which projections about private operating companies may lack a
reasonable basis. As the SPAC market has grown, concerns also have arisen about
whether some SPACs may be investment companies that are subject to the requirements
of the Investment Company Act.

Enhancing Disclosure and Investor Protection
The proposed rules would require enhanced disclosure and provide additional investor
protections in initial public offerings by SPACs and in de-SPAC transactions, including:
●    Enhanced disclosures regarding, among other things, SPAC sponsors, conflicts of
interest, and dilution;

The Securities and Exchange Commission proposed rules and amendments regarding special
purpose acquisition companies (SPACs), shell companies, and projections disclosure. The
proposed new rules and amendments would, among other things:
●    Enhance disclosures and provide additional investor protections in SPAC initial public
offerings and in business combination transactions between SPACs and private
operating companies (de-SPAC transactions);
●    Address the treatment under the Securities Act of 1933 of business combination
transactions involving a reporting shell company and amend the financial statement
requirements applicable to transactions involving shell companies;
●    Provide additional guidance on the use of projections in SEC filings to address
concerns about their reliability; and
●    Assist SPACs in assessing when they may be subject to regulation under the
Investment Company Act of 1940.

FACT SHEET | SPACs, Shell Companies, and Projections: Proposed Rules

U.S. SECURITIES AND EXCHANGE COMMISSION  Page 2 of 3
●    Additional disclosures on de-SPAC transactions, including with respect to the
fairness of the transactions to the SPAC investors;
●    A requirement that the private operating company would be a co-registrant when a
SPAC files a registration statement on Form S-4 or Form F-4 for a de-SPAC
transaction;
●    A re-determination of smaller reporting company status within four days following
the consummation of a de-SPAC transaction;
●    An amended definition of “blank check company” to make the liability safe harbor in
the Private Securities Litigation Reform Act of 1995 for forward-looking statements,
such as projections, unavailable in filings by SPACs and certain other blank check
companies; and
●    A rule that deems underwriters in a SPAC initial public offering to be underwriters in
a subsequent de-SPAC transaction when certain conditions are met.

Business Combinations Involving Shell Companies
The proposed rules applicable to business combination transactions involving shell
companies, including SPACs, would:
●    Deem by rule that a business combination transaction involving a reporting shell
company and another entity that is not a shell company constitutes a sale of
securities to the reporting shell company’s shareholders for purposes of the
Securities Act; and
●    Better align the required financial statements of private operating companies in
transactions involving shell companies with those required in registration
statements for initial public offerings.

Projections Disclosure
The proposed amendments to Item 10(b) of Regulation S-K would expand and update the
Commission’s guidance on the presentation of projections of future economic performance
in Commission filings to allow investors to better assess the reliability of the projections
and whether they have a reasonable basis. The Commission proposed additional
disclosure requirements to allow investors to better assess the basis of projections when
they are used in SPAC business combination transactions.

Status of SPACs under the Investment Company Act of 1940
The proposed rule would address the status of SPACs as “investment companies” under
the Investment Company Act. If the proposal is adopted, a SPAC that fully complies with
the rule’s conditions would not need to register as an investment company under the
Investment Company Act.

FACT SHEET | SPACs, Shell Companies, and Projections: Proposed Rules

U.S. SECURITIES AND EXCHANGE COMMISSION  Page 3 of 3
The proposed conditions include, among other things, that a SPAC must:
●    Maintain assets comprising only cash items, government securities, and certain
money market funds;
●    Seek to complete a de-SPAC transaction after which the surviving entity will be
primarily engaged in the business of the target company; and
●    Enter into an agreement with a target company to engage in a de-SPAC transaction
within 18 months after its initial public offering and complete its de-SPAC
transaction within 24 months of such offering.
While a SPAC would not be required to rely on the proposed rule, the proposed conditions
are intended to align with the structures and practices that the Commission preliminarily
believes would distinguish a SPAC that is likely to raise serious questions as to its status
as an investment company from one that does not.

Additional Information:
The public comment period will remain open for 60 days following publication of the proposing release on the
SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever
period is longer.

FACT SHEET 
SPACs, Shell 
Companies, and 
Projections: 
Proposed Rules  

U.S. SECURITIES AND EXCHANGE COMMISSION  PAGE 1 OF 3 

 

 
Why This Matters 
Over the past two years, the U.S. public securities markets have experienced an 
unprecedented surge in the number of initial public offerings by SPACs. The rapid increase 
has heightened investor protection concerns about various aspects of the SPAC structure 
and the increasing use of shell companies as mechanisms for private operating companies 
to become public companies. The surge in SPAC initial public offerings also has renewed 
concerns about the use of projections, particularly with respect to business combination 
transactions in which projections about private operating companies may lack a 
reasonable basis. As the SPAC market has grown, concerns also have arisen about 
whether some SPACs may be investment companies that are subject to the requirements 
of the Investment Company Act. 

 

Enhancing Disclosure and Investor Protection  
The proposed rules would require enhanced disclosure and provide additional investor 
protections in initial public offerings by SPACs and in de-SPAC transactions, including:  

● Enhanced disclosures regarding, among other things, SPAC sponsors, conflicts of 
interest, and dilution; 

 
The Securities and Exchange Commission proposed rules and amendments regarding special 
purpose acquisition companies (SPACs), shell companies, and projections disclosure. The 
proposed new rules and amendments would, among other things:  

● Enhance disclosures and provide additional investor protections in SPAC initial public 
offerings and in business combination transactions between SPACs and private 
operating companies (de-SPAC transactions); 

● Address the treatment under the Securities Act of 1933 of business combination 
transactions involving a reporting shell company and amend the financial statement 
requirements applicable to transactions involving shell companies; 

● Provide additional guidance on the use of projections in SEC filings to address 
concerns about their reliability; and 

● Assist SPACs in assessing when they may be subject to regulation under the 
Investment Company Act of 1940.   
 



FACT SHEET | SPACs, Shell Companies, and Projections: Proposed Rules 
 

U.S. SECURITIES AND EXCHANGE COMMISSION  Page 2 of 3 

● Additional disclosures on de-SPAC transactions, including with respect to the 
fairness of the transactions to the SPAC investors; 

● A requirement that the private operating company would be a co-registrant when a 
SPAC files a registration statement on Form S-4 or Form F-4 for a de-SPAC 
transaction;  

● A re-determination of smaller reporting company status within four days following 
the consummation of a de-SPAC transaction; 

● An amended definition of “blank check company” to make the liability safe harbor in 
the Private Securities Litigation Reform Act of 1995 for forward-looking statements, 
such as projections, unavailable in filings by SPACs and certain other blank check 
companies; and 

● A rule that deems underwriters in a SPAC initial public offering to be underwriters in 
a subsequent de-SPAC transaction when certain conditions are met. 

 
 

Business Combinations Involving Shell Companies 
The proposed rules applicable to business combination transactions involving shell 
companies, including SPACs, would: 

● Deem by rule that a business combination transaction involving a reporting shell 
company and another entity that is not a shell company constitutes a sale of 
securities to the reporting shell company’s shareholders for purposes of the 
Securities Act; and 

● Better align the required financial statements of private operating companies in 
transactions involving shell companies with those required in registration 
statements for initial public offerings. 

 
 

Projections Disclosure 
The proposed amendments to Item 10(b) of Regulation S-K would expand and update the 
Commission’s guidance on the presentation of projections of future economic performance 
in Commission filings to allow investors to better assess the reliability of the projections 
and whether they have a reasonable basis. The Commission proposed additional 
disclosure requirements to allow investors to better assess the basis of projections when 
they are used in SPAC business combination transactions. 

 
 

Status of SPACs under the Investment Company Act of 1940 
The proposed rule would address the status of SPACs as “investment companies” under 
the Investment Company Act. If the proposal is adopted, a SPAC that fully complies with 
the rule’s conditions would not need to register as an investment company under the 
Investment Company Act. 

 



FACT SHEET | SPACs, Shell Companies, and Projections: Proposed Rules 
 

U.S. SECURITIES AND EXCHANGE COMMISSION  Page 3 of 3 

The proposed conditions include, among other things, that a SPAC must:  

● Maintain assets comprising only cash items, government securities, and certain 
money market funds; 

● Seek to complete a de-SPAC transaction after which the surviving entity will be 
primarily engaged in the business of the target company; and 

● Enter into an agreement with a target company to engage in a de-SPAC transaction 
within 18 months after its initial public offering and complete its de-SPAC 
transaction within 24 months of such offering. 

While a SPAC would not be required to rely on the proposed rule, the proposed conditions 
are intended to align with the structures and practices that the Commission preliminarily 
believes would distinguish a SPAC that is likely to raise serious questions as to its status 
as an investment company from one that does not. 

 

Additional Information: 
The public comment period will remain open for 60 days following publication of the proposing release on the 
SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever 
period is longer. 


	Why This Matters
	Enhancing Disclosure and Investor Protection
	Business Combinations Involving Shell Companies
	Projections Disclosure
	Status of SPACs under the Investment Company Act of 1940
	Additional Information: