Special Purpose Acquisition Companies (SPACs)

Special purpose acquisition companies (SPACs) have existed for decades in various forms, but in recent years they have been increasing in prevalence and size. After defining the purpose and prevalence of SPACs, this Director FAQ outlines the duties of directors who serve on SPAC boards and/or on the boards of the target companies that SPACs buy. The FAQ concludes with the practicalities of SPAC rules, costs, and timelines. 

Q: What are special purpose acquisition companies (SPACs), and what are the duties of the directors who serve on their boards or on the boards of their targets?  

A: SPACs, also called blank check companies, are preoperational funded companies that have legal status as public companies. Directors of SPACs exercise standard fiduciary duties as they advance the purpose of these short-term structures, which are formed as vehicles to take private companies public. 

1. Definition and Purpose of SPACs 

A special purpose acquisition company (SPAC)—also called a blank check shell company—is a newly formed public company that exists as a structure or “shell” for the purpose of acquiring a privately owned company and taking it public. Such companies are often formed in business-favorable jurisdictions such as Delaware or the Cayman Islands and follow their governance rules for boards. SPACs are a subset of the transaction type known as a reverse merger, in which a private company buys a public company shell in order to go public. In the SPAC type of reverse merger, the public company shell seeks and buys the operating private company. A SPAC, however, is more than a shell, because although it does not have operations, it does have a management group that is active in the selection of the companies to be purchased.