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What Are The Benefits Of A Shell Company?

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What Are The Benefits Of A Shell Company?

In essence, a shell corporation possesses no or nominal operations, and either no or nominal assets, or its assets consists solely of cash and cash equivalents, orit has assets that consist of any amount of cash and cash equivalents and nominal other assets. To many people, shell companies are associated with illegal or questionable activities, such as tax avoidance, tax evasion, and money laundering. Yet, shell companies have many positive benefits.

Some Benefits of Using a Shell Company

In setting up a shell company, you may use as its registered address, the registered address of the agent who set up the shell company. 

It does not need to have significant assets or operations to conduct business. 

Shell companies are often used for purposes of anonymity. Anonymity is often sought to protect assets, for instance, from creditors, or a spouse during divorce, or from the government or other entities. Anonymising ownership is usually done through a special purpose entity

More positively, a shell company can be used as a trust or even as a trustee, to facilitate business transactions. This allows the trustee to limit liability. 

In itself, a shell company can be used to limit the partner’s liability, or to shield a sphere of their business activities from risks incurred in other spheres. 

A shell company can also be used to limit liability for partners and their business interests, or to inoculate one part of their business from risks assumed in another. 

Often, when transferring ownership of assets from one company to a newer company, a shell company is used, while keeping liabilities in the older company. 

Startups, such as those offering carpet repair, often use shell companies for their fundraising activities. Shell companies allow them to tap into a variety of financing avenues. 

In conducting a hostile takeover, investors often use shell companies. Shell companies are also used when a firm wants to go public.

Legitimate Reasons Why Shell Companies Are Created for Setting Up a Shell Company

A shell company is often used to gain access to tax havens.For instance, Apple’s corporate domicile is in the Republic of Ireland, because Ireland has very low tax rates. Apple’s use of Ireland as a corporate domicile is part of a bigger pattern of multinationals shifting jobs and profits offshore of jobs and profits, to tap into more favourable tax codes. 

Offshoring is a legitimate reason for using shell companies. So long as a company registers a shell company is a tax zone with friendlier tax rates, it can offshore jobs and profits. 

Shelf companies are also used by financial institutions who want to participate in overseas financial markets, say, for example, by investing in their capital markets.

Abuse of Shell Companies

Shell companies get a bad rap because of abuses done to achieve a variety of goals. The most egregious abuse of shell companies was documented in 2016 by the German newspaper, Süddeutsche Zeitung. The paper published 11.5 million documents that showed that the owners of more than 214,000 shell companies managed by the Panamanian law firm Mossack Fonseca, used their shell companies for purposes of tax avoidance and other illegal activities.

Jacob Maslow is a Columnist at Disrupt Magazine. Based in the Middle East, he specializes in Journalism. He is the founder and editor of several news sites including Legal Scoops and Streetwise Journal.

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