The Basics A shell company is a business that’s created to hold funds and manage another entity’s financial transactions. Unlike traditional companies, shell corporations don’t have employees and aren’t traded on exchanges. Shell companies neither make money nor provide customers with products or services. In fact, the only normal business practice that shell companies participate in is keeping track of the assets they hold – which usually doesn’t amount to much money.
The Benefits of Shell Companies
Business owners and individuals can benefit from shell companies in many ways. For example, a new startup can use a shell corporation to store the money it’s raising before it officially launches. A company that’s preparing to go through a merger or an acquisition can save its assets in a shell company to simplify matters. Corporations can also use shell companies for security reasons. For instance, a company might create a shell company if it’s operating in an unsafe region or working with an unpopular company that it doesn’t want to be associated with. A shell company can be helpful during the estate planning process if a neutral account is needed to divide a wealthy individual’s assets. Even someone who’s going through a nasty divorce can use a shell company as a way to shield his or her earnings from an ex-spouse.
A shell corporation is a company which serves as a vehicle for business transactions without having any significant assets or operations. Shell corporations are not illegal and they may have legitimate business purposes. They are also known as international business corporations (IBCs), personal investment companies (PICs), front companies, or mailbox companies.
An example of a legal use of a shell company is a supplier of store brand groceries that sets up a shell company when dealing with hard discounters. By concealing its business relation with the discount chain, the supplier prevents diluting the value of its main brand which sells at higher prices.
