A "reverse merger" (also known as “reverse takeover” or “RTO”) is a method by which a private company goes public. In a reverse merger, a private company merges with a publicly listed company with no assets or liabilities. A publicly traded corporation is called a "shell" since all that exists of the original company is its corporate shell structure. By merging into such an entity, a private company becomes public. 

The private company merges into a public company and obtains the majority of its stock (usually 80%). The private company normally changes the name of the public corporation (often to its own name) and appoints and elects its management and board of directors. The new public corporation has a base of shareholders sufficient to meet the 300-shareholder requirement for admission to quotation on the NASDAQ Capital Market in the future. 

The advantages of public trading status notably include the possibility of commanding a higher price for a later offering of the company's securities. Going public through a reverse merger allows a private company to go public, typically at a lower cost and with less stock dilution than through an initial public offering (IPO). While the process of going public and raising capital is combined in an IPO, in a reverse merger, these two functions are unbundled; a company can go public without raising additional capital. Through this unbundling operation, the process of going public is greatly simplified.