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

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● 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.
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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.