In simplest terms, a shell corporation is a legal entity which exists only on paper without a physical officer or employees. They have financial assets, however they do not create products, recruit employees or generate revenue in any manner.

What is a shell corporation?

A shell corporation has no significant business activity, they do have financial assets however they don’t create products or recruit employees. They do store money for different purposes and engage in financial transactions while these corporations can be used for money laundering purposes and illegal activities. Shell corporations exist in a variety of names including international business corporations, investment companies, phantom corporations, mailbox firms, or letter-box companies.

What do shell corporations do?

Mainly what a sell corporation does is to hold funds and manage financial transactions for another company. Shell corporations can hide the identity of their owners by setting up anonymously allowing businesses to engage in financial deals without revealing themselves.  Shell corporations are formed in tax havens (countries with few or no taxes with laws against disclosing bank information), so these companies can enjoy low taxes while having access to foreign markets.

Why are shell corporations used?

While they are mainly used to fold funds and withhold taxes they also act as an offshore company where you can move a part of your operations to another country to take advantage of low taxes. Apart from an offshore company, a shell corporation is also used to hold money temporarily, to register as an IPO – initial public offering, invest in a foreign market and to protect assets from law and regulation. 

Why you should not consider a shell corporation for your business

Getting support of a shell corporation as an offshore corporation definitely has its own set of benefits, but it could also attract a lot of bad publicity. While using a shell corporation to also hold money or assets can bring in benefits purely on a shorter note where damage is higher. Specially selecting a shell company as an umbrella company may affect your business continuity adversely. It is important to do a proper background check before getting onboard as it is necessary to have certain presence when it comes to long term decisions. Shell company’s ownership is hidden and this could be a big risk when you put your company’s assets and reputations inline as there are many instances where shell corporations have gotten into money laundering and illegal activities.

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