Blank Check Companies: Definition, Operations, and Case Studies


A blank check company, often associated with special purpose acquisition companies (SPACs), is a publicly-traded entity without a defined business plan. These companies aim to raise funds and then merge or acquire another business. While they offer investment opportunities, they come with unique risks and regulatory constraints. Learn more about blank check companies, their working, recent trends, and potential pitfalls.

What is a blank check company?

A blank check company is a publicly-traded, developmental stage company with no established business plan. Its primary purpose is to gather funds for a future merger or acquisition. Blank check companies, often associated with special purpose acquisition companies (SPACs), fall under the regulatory purview of the Securities and Exchange Commission (SEC), particularly Rule 419, designed to safeguard investors.

How a blank check company works

Blank check companies, which are often categorized as penny stocks or microcap stocks by the SEC, must adhere to stringent rules. These rules include depositing raised funds into an escrow account until shareholders formally approve an acquisition. Moreover, they are not allowed to utilize certain exemptions under Regulation D of the Securities Act of 1933, such as Rule 504.

A prominent type of blank check company is the special purpose acquisition company (SPAC). SPACs are created via an initial public offering (IPO) to fund a future merger or acquisition within a specific timeframe, typically 24 months. If no acquisition occurs within this period, the SPAC dissolves, and investors’ funds are returned. SPAC managers typically retain 20% equity, with the remaining portion going to IPO subscribers.

Blank check companies falling out of favor

Blank check companies, especially SPACs, witnessed a surge in popularity in 2020 and 2021, with a record number of IPOs. However, this trend saw a significant slowdown in 2022 due to factors like rising interest rates, increased regulatory scrutiny, and negative media coverage. Some blank check companies faced criticism for making unrealistic forward-looking statements and failing to meet expectations, resulting in lawsuits.

Example of a blank check company

In 2015, the Gores Group, a Los Angeles-based private equity firm, established Gores Holdings, a blank check company, after a successful public relations campaign about the discontinuation of Twinkies. Gores Holdings raised $375 million in an IPO and played a pivotal role in the acquisition of Twinkie-maker Hostess Brands. Other companies, including Verra Mobility Corp. and United Wholesale Mortgage, were also taken public by Gores. However, concerns about overvaluation and legal disputes arose in some cases, contributing to a slowdown in the blank check company market.

What are the biggest blank check companies?

As of June 2023, the largest blank check companies, based on total assets, were Vertiv Holdings, Jaws Spitfire Acquisition Corporation, and Tuscan Holdings Corp, according to the Sovereign Wealth Fund Institute.

Why is a SPAC called blank check?

SPACs, or special purpose acquisition companies, are termed “blank check” companies because they are established without a predetermined acquisition target.

Why do people invest in blank check companies?

Investors are drawn to blank check companies due to their growth potential. These companies offer opportunities to invest in private companies or emerging ventures before they go public and become subject to high valuations. However, the uncertainty of the investment, not knowing the acquired company in advance, makes them inherently risky.

Why are SPACs more risky?

SPACs entail significant risks because investors do not have prior knowledge of the target company. Moreover, past performance has shown that many SPACs failed to meet expectations.


Here is a list of the benefits and drawbacks to consider.

  • Potential for significant growth
  • Opportunity to invest in private companies
  • Uncertainty regarding target company
  • Past underperformance of some SPACs

The bottom line

Blank check companies, often associated with SPACs, are essentially shell companies established to go public, raise funds, and acquire private entities. While they witnessed a boom in 2020 and 2021, their popularity waned in 2022 due to economic uncertainties, heightened borrowing costs, regulatory concerns, and high-profile lawsuits. Investors should exercise caution and conduct thorough due diligence when considering investments in blank check companies.

Frequently asked questions

What is the purpose of a blank check company?

A blank check company is established to raise funds for a future merger or acquisition, typically with the intent of acquiring another business entity.

Why are SPACs called “blank check” companies?

SPACs are termed “blank check” companies because they are formed without a specific acquisition target in mind, allowing them to merge with a wide range of companies.

Why do investors choose to invest in blank check companies?

Investors are attracted to blank check companies for their growth potential and the opportunity to invest in private companies before they go public. However, they come with the risk of not knowing the target company in advance.

Key takeaways

  • Blank check companies are publicly-traded entities without established business plans.
  • They aim to raise funds for mergers or acquisitions, often associated with SPACs.
  • SPACs, a type of blank check company, have gained popularity but also faced increased scrutiny and lawsuits.
  • Investors should be cautious due to the uncertainty and risks associated with blank check companies.
View article sources
  1. “Blank Checks” by Megan E. Ball – Notre Dame Law School
  2. Blank check – Pacific University Forest Grove Campus
  3. Blank Check Company – U.S. Securities and Exchange Commission
  4. What is a Counter Check? Definition & Example – SuperMoney