SPACs and Blank-Check Companies Explained: How They List and Merge

A special purpose acquisition company, or SPAC, is a company with no operating business that raises money in an initial public offering so it can later acquire a private company and take it public. Because it has no operations when it lists, a SPAC is also called a blank-check company: investors put money in without knowing which business it will buy. The acquisition, when it happens, is called a de-SPAC transaction, and the private company that is acquired is the target.

The SEC’s Division of Corporation Finance described the basic structure in a staff statement from 2020 that has since been withdrawn and superseded by rules: a SPAC offers securities for cash and places substantially all of the offering proceeds into a trust or escrow account for use in acquiring one or more private operating companies. After the IPO, the SPAC looks for a target and tries to complete a business combination, after which the combined company continues the target’s operations as a public company. The key features to understand are who runs the SPAC, what the public shareholders are promised, and what protections the securities rules add.

In brief

• A SPAC lists first and acquires later; investors fund a vehicle whose target is not yet chosen.
• Proceeds are held in a trust or escrow account, and the SPAC generally has a set period to complete a deal or return the funds to public shareholders.
• Sponsors’ economic interests can differ from those of public shareholders, which is why conflict disclosure is a rule focus.
• SEC rules adopted January 24, 2024 added SPAC-specific disclosure, projection rules, minimum dissemination periods and target co-registration to align de-SPACs more closely with traditional IPOs.

How a SPAC is built

The sponsor

A SPAC is formed and managed by a sponsor, an individual or group, along with directors and officers. The sponsor and its affiliates generally receive compensation and securities issuances, which the SEC’s 2024 rules require the prospectus to disclose, and that gives them a financial stake in the SPAC completing a deal. The SEC’s staff noted in its earlier statement that the economic interests of the sponsor, directors, officers and affiliates often differ from those of public shareholders, which may lead to conflicts as they evaluate and recommend business combinations. It also pointed out that, unlike a traditional IPO where the market prices the company, these individuals are responsible for deciding how to value the private company and how much the SPAC will pay for it.

The IPO

A SPAC registers its IPO on Form S-1, the same form used by operating companies, and then lists on an exchange. Form S-1 itself recognizes the structure: Item 6, the dilution disclosure, does not apply to a SPAC as defined in Item 1601 of Regulation S-K. Under the SEC’s 2024 rules, the prospectus must disclose certain items on the outside front cover, in the summary and in the body, including the time frame to complete a de-SPAC transaction, redemption rights, compensation and securities issued to sponsors and others, dilution, conflicts of interest, how targets are identified, the terms of the trust or escrow account, the terms of the securities offered and any additional financings.

The trust account and the deadline

Public shareholders’ money sits in a trust or escrow account. Under the typical terms of a SPAC’s governing documents, as the SEC staff described them, if the SPAC does not complete a business combination within a specified period it must liquidate and distribute the net offering proceeds in trust pro rata to its public shareholders. The staff observed that as the deadline nears, the SPAC’s options narrow, which can give acquisition targets leverage in negotiating terms. SPACs may also seek shareholder approval to extend the period, and the redemption terms attached to extension and merger votes are among the matters the disclosure rules cover. The specific length of the period, the amount held per share and the terms of any warrants are set in each SPAC’s prospectus, so these figures should be read there rather than assumed.

From announcement to merger: the de-SPAC

When a SPAC finds a target, the two sign a business combination agreement. Depending on the structure, the SPAC files a registration statement, or a proxy or information statement, describing the transaction, and public shareholders usually vote on it and have the right to redeem their shares for their pro rata share of the trust. The SEC’s 2024 rules address several features of this stage.

Disclosure about the deal

The 2024 rules added a new subpart 1600 to Regulation S-K. For de-SPAC transactions it calls for disclosure on the background and material terms of the deal, the reasons for it, the effects on shareholders, dilution, financing transactions and redemption rights. It also calls for the board’s determination, if required by law, on whether the transaction is advisable and in the best interests of the SPAC and its shareholders; whether approval by a majority of unaffiliated shareholders is required; and whether an unaffiliated representative was retained to negotiate for those shareholders. Outside reports, opinions or appraisals that materially relate to the transaction, including fairness opinions, must be described and filed as exhibits. When a SPAC makes a tender offer for redemptions, the rules require it to comply with the tender offer rules and specify the Schedule TO content.

Minimum dissemination

Registration statements, proxy statements and information statements used in de-SPAC transactions must be sent to security holders no later than the lesser of 20 calendar days before the meeting or action, or the maximum number of days permitted under the law of the jurisdiction where the SPAC is incorporated or organized.

Target co-registration and liability

Under the rules, the target company must sign a Securities Act registration statement filed by a SPAC or other shell company in connection with a de-SPAC transaction and be designated as a registrant on the cover page. The SEC explained that this makes the target a co-registrant that assumes responsibility for disclosures in that registration statement, and that it aligns the liability of de-SPAC transactions more closely with traditional IPOs.

Projections and the safe harbor

SPAC deals have often been marketed with financial projections. The rules require disclosure of all material bases of projections and all material assumptions underlying them in de-SPAC filings, and they update and expand SEC guidance on projections in all filings. They also define “blank check company” for purposes of the Private Securities Litigation Reform Act of 1995 in a way that makes the statutory safe harbor for forward-looking statements unavailable to blank check companies, including SPACs.

Financial statements and shell company rules

The rules include new financial statement requirements for acquisitions involving shell companies, and a rule (Rule 145a) providing that certain business combinations of reporting shell companies with non-shell entities are treated as sales of securities to the shell’s shareholders. A target that is an emerging growth company would only have to provide two years of financial statements under the new Regulation S-X rule.

Smaller reporting company status

After a de-SPAC, the combined company must re-determine whether it is a smaller reporting company, using public float measured within four business days after the transaction closes and the target’s annual revenues from the most recent fiscal year reported in the “Super 8-K.” The new status is reflected in filings beginning 45 days after the closing.

When the rules took effect

The SEC adopted the rules on January 24, 2024. The Division of Corporation Finance later referred to the SPAC rules as having become effective in July 2024. Structured data tagging of the new subpart 1600 disclosures in Inline XBRL had a separate, later compliance date set out in the SEC’s compliance guide.

In March 2025 the staff also expanded its nonpublic review accommodations. Among other things, issuers may submit a registration statement for a de-SPAC transaction for nonpublic review as if it were an initial Securities Act registration statement, where the target would independently be eligible to submit a draft, and the staff extended nonpublic review to de-SPAC transactions where the SPAC is the surviving entity.

Reading SPAC filings on a calendar

SPACs show up on IPO calendars and new listing lists like any other offering, often as units that combine a share with a warrant or other right. Because they have no operating history, their S-1s focus on the sponsor, the trust, the search criteria and the incentives. The filings to read are the S-1 and its amendments, the final 424(b) prospectus, the periodic reports that follow, and later the proxy or registration statement for a business combination. For a de-SPAC, read the sections on background, the board’s determination, projections and redemption rights.

Common misconceptions

“A SPAC is not regulated like an IPO.” SPACs register their offerings and file reports like other issuers, and the 2024 rules were adopted to align de-SPAC protections more closely with traditional IPO protections. In the SEC Chair’s words at the time, using an alternative method to go public does not mean investors are less deserving of time-tested protections.

“The money in trust is guaranteed.” The trust terms are set out in the SPAC’s documents, and what shareholders receive depends on those terms. Read the prospectus for the trust account, redemption and liquidation provisions.

“A de-SPAC target has no liability for its disclosures.” The co-registrant rule means the target signs the registration statement in covered transactions and assumes responsibility for its disclosure.

“Projections are protected by the usual safe harbor.” For blank check companies, the statutory safe harbor is not available under the 2024 definitions, and the rules add disclosure requirements for projections.

FAQ

What does “blank check” mean?

It describes a company formed to acquire an unidentified business. Investors fund it without knowing the target. The term also has a statutory meaning in the securities laws, and the SEC’s 2024 rules added a definition for purposes of the Private Securities Litigation Reform Act.

What is a de-SPAC transaction?

The business combination between a SPAC and a private operating company, after which the operating business becomes part of a public company. The SEC’s subpart 1600 of Regulation S-K defines the term for disclosure purposes.

Can shareholders get their money back if they dislike a deal?

SPAC structures generally give public shareholders redemption rights tied to the trust, and a SPAC that fails to complete a deal in its set period must liquidate and distribute the trust. The details differ by SPAC and appear in the prospectus.

Who is the sponsor and why does it matter?

The sponsor is the person or group that forms and manages the SPAC. Its compensation and its stake in a deal are central conflict-of-interest disclosures under the SEC rules.

Are SPAC filings reviewed by the SEC?

The Division of Corporation Finance selectively reviews transactional filings, and SPAC registration statements and de-SPAC filings are covered by that process. The staff’s draft registration processing policies apply to them, including nonpublic review under the conditions the staff has published.