SPACS- A BOON OR A CURSE?
AUTHOR – JHANVI JAIN & KARNIKA SINGH, STUDENT AT KIIT UNIVERSITY, SCHOOL OF LAW
BEST CITATION – JHANVI JAIN & KARNIKA SINGH, SPACS- A BOON OR A CURSE?, INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 4 (1) OF 2024, PG. 1504-1511, APIS – 3920 – 0001 & ISSN – 2583-2344.
INTRODUCTION
Special Purpose Acquisition Company or SPACs are an alternative method of getting unlisted companies listed without it going through the hassles of an Initial Public Offer (IPO). They are basically blank-check companies with no operations of their own, formed with the sole purpose of getting an unlisted company listed by acquiring or merging it. It has a life span of two years, and if it does not manage to merge with any other company in the span of 18-24 months it is liquidated and all its funds are returned to its original investors. SPAC came into existence roughly 20 years ago in the United States of America. SPACs were initially seen as a pump and dump scheme as they led investors to lose money by defrauding them into believing that they were going to merge with a company and pump up the prices and later the insiders would sell the shares before the truth could be exposed to the retail investors. This situation led the Congress to lay down a basic regulatory framework and posed a requirement for money to be deposited in a regulated escrow account and barring its use until the acquisition/ merger was complete.[1]
[1] Prashant Singhal, Pranav Sayta, ‘Special Purpose Acquisition Company (SPAC) Ernst and Young’ <https://www.ey.com/en_in/strategy-transactions/spac-services > last accessed on 6th December 2023