Shell Companies: The Good, the Bad, and the Ugly

by Norris Law Group on November 17, 2014

Shell Companies: The Good, the Bad, and the UglyShell companies are a powerful tool through which businesses and corporations can transact business legally and often anonymously. But due to the fact that some choose to use some of the benefits of shell companies for nefarious purposes, these legal entities have garnered somewhat of a “checkered” reputation. In this blog, we will take a look at “the good, the bad, and the ugly” regarding how shell companies may be used and try to dispel some myths about them.

The Good

According to Investopedia, shell companies are legal businesses or corporations that are typically used as “transactional vehicles” through which money moves between corporations. Shell companies can also be used to obtain financing, or to hold stock or assets for another business entity. For example, Company X may wish to do business with Company Y, but Company X may not want their dealings with Company Y to be made public for some reason. In such a circumstance, Company X could do business with Company Y through a shell company rather than through its more well-known parent company, perhaps if Company X is considering a merger that it is not ready to announce yet.

The Bad

While shell companies are legal, some business people choose to use them to try to skirt existing laws and do business “under the radar” of regulators and the legal system. One common—and illegal—use of a shell corporation is money laundering. If someone obtains funds through illegal means such as drug activity or theft, that person may try to mask the funds under the guise of a shell company. While criminals may think that they can easily get away with money laundering via shell companies, the Securities and Exchange Commission (SEC) can break the wall of anonymity provided by shell companies and prosecute those who use shell companies illegally.

The Ugly

Unfortunately, shell companies have been used around the world for fraudulent purposes, giving shell companies a bit of a “bad rap” internationally. India has seen some of the most brazen involving activity involving shell companies. One example is a firm based in Kolkata, India, which used shell companies to turn “black money” into “white” in an attempt to avoid taxes, as reported by the India Times. New Zealand is also under fire for making it easy for shell companies to be registered there and then used for illegal purposes, according to the International Consortium of Investigative Journalists.

Shell companies can prove to be a very useful vehicle for doing business legitimately when they are used correctly. Speak with a skilled business law attorney to find out whether a shell company may be right for you.

Attorney Grah
am Norris
 and his associates at the Norris Law Group serve the residents of Utah County, UT and throughout Utah, Wyoming and Idaho. Contact them today at 801-932-1238 or online for a free consultation.


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