As described below, the hypothetical public company has 1 million common shares outstanding prior to any sort of transaction with a private company. Of these 1 million shares, half are owned by public investors and half are owned by the person or people who control the public company. Once a deal is struck, for the private company to acquire the public one, it might be consummated in this three-way process:

1. The public company issues 9 million shares of common stock to the person or people who own the private company. What is the ownership structure of the public company? There are now 10 million shares outstanding. Of these, 9 million, or 90 percent of the company, are held by the owner of the private company. Another 500,000 shares, or 5% ownership of the company, are held by the person or people who controlled the public company. And the public investors hold the remaining 500,000 shares, or 5% of the company. Note that prior to merger, the public owned 50% of the public company, but after the merger, it owned just 5%.

2. The 9 million shares of common stock are usually issued to the shaeholders of the private company in exchange for something. In most reverse merger transactions, the private company: a) contributes all of its assets to the public company, b) issues shares of its own to the public company, or c) buys the shares outright from the public company at a nominal price.

3. The public company then changes its name, usually to the name used by the private company, to reflect the change in its business.

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