A business entity without any significant assets or business operation is known as a shell company. Some people think creating a shell company is against the law, but it is legal. In most situations, it is used for legitimate purposes. Such things as hiding assets or business ownership. The most practical purpose for a business to have a shell company is to keep track of the assets contained within them. It is common for this to not be any significant amount.
A private company’s shareholders can create a shell company to have control of a public shell company. This could then be merged into the private company. The company that is a publicly-traded corporation will be the shell company. When this happens, the only thing that remains of the original company is the organizational structure. In this case, the shareholders of the private company will receive a significant majority of shares of the public company. They will also have a controlling interest concerning its board of directors.
Purpose Of A Shell Company
In many situations, a shell company is a financial vehicle used for avoiding taxes. Some companies use shell companies to obtain different types of financing. One of the most popular and legitimate reasons for a shell company is to create a tax haven abroad. This could involve Switzerland, Panama, and others. Shell companies make it possible or companies in the United States to lower their tax bill in the United States. This is because some tax haven countries don’t report any type of tax information to the United States government. In this situation, it is possible to legally avoid taxes since a company’s profits in an offshore shell company won’t be taxed until they come back into the United States.
No Public Record
Shell companies are legally used to protect assets because there are no public records of the company’s owner. Many companies will place assets in a shell company before participating in a large merger or acquisition to protect assets and simplify the transaction process. An example would be if someone lived in Spain for a few years Their capital may have decreased significantly, but if they maintain their assets in a shell company offshore, they may be able to avoid a volatile Spanish economy.
A popular use of a shell company is putting assets in them so a company can then sell them and avoid taxation associated with the sale of the assets. A wealthy person could list their airplane as being the property of a shell company. Instead of selling the airplane, the wealthy person could sell the shell company. This way they will avoid all the costs associated with taxes and registration fees involved with the sale of the airplane.
There are certain downside aspects of a shell company. Some are troubled by the ease at which a shell company can be set up. Shell companies can create a place where individuals can act through companies and be hidden from the world. Some criminals have utilized shell companies to benefit their illegal activities and more. It can be an LLC or other type of corporate business structure.
Is a Shell Company The Same As A Shelf Company?
A shelf company is completely different from a shell company. They have this name because once the corporation is formed, it is then put on a shelf to obtain age. Age is an essential factor in forming a shelf company. The benefits of it are experienced by a purchaser from the company’s age and longevity. A shelf company makes it possible for a company to avoid the long and involved process of registering a new company. It also makes it possible for a buyer to use a shelf company to quickly open a new account with financial institutions. Other companies will be more likely to do business with a company that appears to have been operating for a long time and are established.
Shell Company Schemes
An employee of a company can easily commit fraud using a shell company. An employee will set up a shell company in the name of a close friend, spouse or relative. It could also have a completely fabricated name. The company often consists of nothing more than a mail drop or post office box.
*False Billing Schemes – It is used to invoice an employer for goods or services that have never been rendered or delivered.
*Purchase Of Goods – An employee sets up a shell company to provide goods or services to their employer. Goods supplied to an employer will be sent to the company by a wholesaler or manufacturer. The wholesaler or manufacturer is then told to invoice the shell company. The shell company then turns around and sends invoices to the employer with a significant mark-up.
*Purchase Of Services – An employee with a shell company will contract legitimate suppliers for various services. The legitimate company is told to bill the shell company. The shell company then invoices the employer for the services. The invoices will also have a significant mark-up.
This often involves owners of shell companies having bank accounts in the company’s name. A network of shell companies can then be established. Funds from illegal activities are moved around in the network. It usually involves a series of complex transactions. When funds have been moved around enough, they could stop in one company. The assets can then be used to purchase high-value assets including personal property, real estate and more. There have been all-cash purchases made in the name of shell companies.
What Are The Risks of A Shell Company ?
A shell corporation can be a risky choice, but it depends on how it is used. It could make perfect business sense to create a shell corporation. Doing this could also result in a company getting some bad publicity. A business moving financial capital and jobs out of the country could be viewed negatively by the American public. It may not be legal to create a shell company for personal assets, but it is important to realize it is considered a legal gray area. Income earned in the United State is subject to the taxes of the United States. Hiding any type of income from the IRS could result in serious consequences. This could involve civil or criminal penalties.
There are situations where a legitimate shell corporation can provide important benefits. It can provide a way to manage assets without revealing identities. Anyone who wants to pursue the advantages of a shell corporation should speak with an experienced attorney. This is the best way to be certain a company will remain on the right side of the law.