Shell corporations are businesses that are created to hold funds and manage financial transactions of other entities. These corporations do not have substantial assets, employees, or active operations, and they do not provide customers with products or services. Entities can use shell corporations as legal tools for the following:
- For business transactions
- To reduce tax liability
- To access financing
- To store funds,
- To maintain anonymity
- To reduce tax liability
An experienced business formation lawyer can give you a more detailed explanation about how shell companies work and how to form one.
Understanding Shell Corporations
A shell corporation exists only on paper but it can have a bank account and can passively hold investments. It can also be a registered owner of assets or intellectual property, which means that it can collect royalties. Shell corporations can be set up anonymously which makes it possible for businesses and individuals to carry out transactions without revealing their identities. A business can use shell companies to limit the liability of partners if the company is a partnership, and protect itself from various risks in its industry. Some of the reasons for a shell company are to:
- Conduct financial activity in foreign markets
- Protect company’s assets from lawsuits
- Protect assets when a company is going through a big acquisition
- Stage a hostile takeover where one company acquires another without the approval of the target company’s management
- Hide transactions and deals with a company that has a poor reputation
- Hide your money and identity from criminals
Shell companies are great for protecting assets because there are no public records of the owner of an asset that is placed under a shell company. You can set up a shell company legally with the help of an experienced business lawyer.
Taxes And Foreign Markets
It is possible to use shell corporations for tax avoidance and as a tool for acquiring different forms of financing. That is why some U.S. companies that want to lower their tax bill use shell companies to realize a tax haven abroad in places such as Switzerland and Panama. This is because a number of tax havens do not report tax information to the United States. Tax havens are foreign countries that allow foreigners little or no tax liability in an environment that is politically and economically stable. However, quite a number of companies set up shell corporations to make it easier for them to base some of their processes and services overseas.
Should You Consider A Shell Company?
You may require a shell corporation if your company is facing a hostile takeover or you want to invest in anonymity. Setting up a shell company can also make it easier for a business to grow its operations while limiting its tax burden. They are also an ideal legal tool you can use to invest in foreign markets such as securities and stock exchanges. However, you need to know the legal details of shell corporations to avoid getting in trouble with the IRS. A trusted and experienced business lawyer can help guide you on how to use a shell company without risking the integrity of your company or brand.