Special Purpose Acquisition Corporation
The founder of a SPAC pools money from investors and may contribute to the SPAC to form a blank cheque company with the sole purpose of acquiring another company—or companies.
The money raised through the IPO of a SPAC is put into a trust. The funds are held until the SPAC successfully identifies a viable merger or acquisition opportunity to pursue with the invested funds.
Investors may not have full knowledge of how their money will be spent, so they issue blank cheques to the SPAC. In turn, the SPAC must receive shareholder approval for all acquisitions and 80% of investor funds must be used in any single deal. If the SPAC fails to find a shareholder-approved deal within two years of creation, it is liquidated and the SPAC's founder loses the investment.
Blank Cheque Preferred Stock
Some companies may issue blank cheque preferred stock as a way to raise additional funds from investors without the need to first seek and obtain approval from shareholders. In order to create blank cheque preferred stocks, the company is required to amend its articles of incorporation to allow for the creation of a class of unissued preferred stock.
In some cases, a public company may choose to issue blank cheque preferred stocks as a form of defence against a potentially hostile takeover bid.
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