A shell corporation is a company which serves as a vehicle for business transactions without itself having any significant asset

Asset

In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...

s or operations. Shell corporations are not in themselves illegal and have legitimate business purposes. However, they are a main component of the underground economy

Underground economy

A black market or underground economy is a market in goods or services which operates outside the formal one supported by established state power. Typically the totality of such activity is referred to with the definite article as a complement to the official economies, by market for such goods and...

, especially those based in tax haven

Tax haven

A tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and a low corruption rate....

s. They may also be known as international business company

International business company

An international business company or international business corporation is an offshore company formed under the laws of some jurisdictions as untaxed company which is not permitted to engage in business within the jurisdiction in which it is incorporated...

, personal investment companies

Investment company

An investment company is a company whose main business is holding securities of other companies purely for investment purposes. The investment company invests money on behalf of its shareholders who in turn share in the profits and losses....

, front companies

Front organization

A front organization is any entity set up by and controlled by another organization, such as intelligence agencies, organized crime groups, banned organizations, religious or political groups, advocacy groups, or corporations...

, or "mailbox

Commercial mail receiving agency

A commercial mail receiving agency , also known as a mail drop, typically operates as a Private Mail Box Operator.A customer of a CMRA can receive mail and other deliveries at the street address of the CMRA rather than the customer's own street address...

" companies.

A classic tax avoidance

Tax avoidance

Tax avoidance is the legal utilization of the tax regime to one's own advantage, to reduce the amount of tax that is payable by means that are within the law. The term tax mitigation is a synonym for tax avoidance. Its original use was by tax advisors as an alternative to the pejorative term tax...

 operation is based on the buying and selling through tax haven shell companies to disguise true profits

Profit (accounting)

In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...

. The firm does its international operations through this shell corporation, thus not having to report to its country the sums involved, avoiding any taxes.

An example of a legal use of a shell company is a supplier of store brand

Store brand

Store brands are a line of products sold by a retailer under a single marketing identity. They bear a similarity to the concept of House brands, Private label brands in the United States, own brands in the UK, and home brands in Australia and generic brands...

 groceries that sets up a shell company when dealing with a hard discounter like Aldi

ALDI

ALDI Einkauf GmbH & Co. oHG, doing business as ', short for "Albrecht Discount", is a discount supermarket chain based in Germany...

. By obscuring its business relation with the discount chain, the supplier prevents diluting the value of its main brand, which sells at much higher prices.

Abuse

Shell corporations have been used to commit fraud, by repeatedly creating an empty shell corporation with a name similar to existing real corporations, then running up the price of the empty shell and suddenly selling it (pump and dump

Pump and dump

"Pump and dump" is a form of microcap stock fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price....

).

Different meaning

The type of "shell corporation" described here should not be confused with a "Shell" company which is a specific term used by the U.S. Securities and Exchange Commission to refer to a publicly held company with no or nominal assets other than money.

See also

• Dummy corporation
• Holding company
  Holding company
  A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...
  
  
• Numbered company
  Numbered company
  A numbered company is a corporation, most commonly found in Canada, given a generic name based on its sequentially-assigned corporation number. For instance, an entity incorporated under the Canada Business Corporations Act and assigned the corporation number 1234567 would be entitled to register...
  
  
• Alternative public offering
  Alternative Public Offering
  An alternative public offering is the combination of a reverse merger with a simultaneous private investment of public equity . It allows companies an alternative to an initial public offering as a means of going public while raising capital.-Overview:There are two parts that comprise an APO:...
  
  
• Transparency (market)
  Transparency (market)
  In economics, a market is transparent if much is known by many about:* What products, services or capital assets are available.* What price.* Where....
  
  
• Money laundering
  Money laundering
  Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...