Why Are Shell Corporations Legal
A shell company can be set up by a law firm in its host country, thus masking its true owner. For example, the Panama Papers were a leak from Panamanian law firm Mossack Fonseca. The leak revealed the different ways in which rich and influential people use offshore tax systems to hide their wealth. At Cueto Law Group, we have experience in dealing with shell company law and offer you the necessary advice to protect your business. If you are involved in a business transaction, an experienced lawyer can discuss the potential benefits of a holding company or shell company in your particular situation. First, you need to decide what your specific goals are for the business transaction. If your goals require it, a shell company can be useful: some of these reasons are legitimate, others exist in legal gray areas, and some are directly related to financial crime. Trying to navigate shell company law can be quite difficult. If you don`t know what you`re doing, you can quickly find yourself in a shady business. Instead, hire a qualified lawyer who specializes in international litigation and arbitration.
StructureShell companies are unlisted companies, which means they are not listed on any stock exchange for investors to buy and sell. Most exist only by name, except as a mailing address, and on paper as a registered financial institution. To become a shell company, an interested party must first file with the U.S. Securities and Exchange Commission (SEC). Limited liability companies (LLCs) and trusts are examples, provided they do not have physical characteristics. In a sense, any start-up filing with the SEC is technically a shell company. As mentioned earlier, the vast majority of shell companies serve legitimate purposes, such as.dem holding shares or intangible assets of another business entity, or facilitating domestic and cross-border transfers of currency and assets and corporate mergers, as explained by the Department of the Treasury Financial Crimes Enforcement Network. For example, many microcap companies fall into the category of shell companies because they typically have limited assets and often trade at below-average volumes. Many internet startups are categorically shell companies.
They can also judiciously protect trade secrets or protect managers from kidnappers or busy people. An example of legal use of a shell company could be when one company interacts financially with another company. However, if «Company A» does not want to be associated with «Company B» because «Company B» has a bad reputation, they can create a shell company through which the transaction can be disguised. But what is a shell company and why do people use it? Shell companies may pursue legitimate business objectives. For example, you may act as a trustee for a trust and not engage in other activities on your own behalf. This structure creates limited liability for the trustee. A corporate envelope can also be formed around a partnership to create limited liability for partners and other business ventures or to isolate one part of a business from the risks of another party. Shell companies can be used to transfer assets from one company to a new one while leaving liabilities in the old company. While using shell companies for offshore operations can be a good business decision, it can also lead to bad publicity.
Public opinion generally disapproves of offshoring jobs and profits out of the United States. When customers discover your shell company, you may find that sales in the U.S. are down. The Securities and Exchange Commission defines a «shell company» as follows: A shell company owner may also hire a designated director to register the company under their name. Shell companies are often used for tax evasion because they are relatively easy to set up and difficult to track. One of the most important ways to use shell companies for tax evasion is to hide taxable income and assets in a shell company located in another country. In 2016, a leak of 11.5 million documents to the Süddeutsche Zeitung revealed information about the owners of more than 214,000 shell companies run by the Mossack Fonseca law firm in Panama. The shell companies have been used by politicians, businessmen, autocrats and terrorists around the world for tax evasion and other illegal activities. [8] Whether you`re starting, buying or selling a business, or need legal support for your regular activities, our business lawyers at Weisblatt Law Firm can help. We help you with day-to-day operations and compliance issues, as well as highly complex mergers and acquisitions using tools such as shell companies or holding companies. We strive to achieve each client`s goals and can help businesses of all shapes and sizes. Please contact our office for more information about our services at 713-352-0847 today.
Even if you don`t plan to operate in a foreign country, you may want to set up a shell company to invest in foreign markets such as stock exchanges and stock exchanges. For example, a small business owner can set up a shell company to protect their identity. Here are some of the most legitimate reasons why people use shell companies. We will discuss the role of shell companies in financial crime in the next section. If your goals are to maintain control of many different companies through a variety of transactions, a holding company will likely be beneficial in many ways. On the other hand, if your goals are for a single transaction, you may want to redirect that transaction through a shell company if the purchase is hostile or risky. Buying or selling a business can seem as simple as transferring assets and property from one business to another. However, these transactions can be much more complicated and result in unexpected civil or tax liability, as well as other costly implications. Holding companies and shell companies are two tools that can be used to avoid potential liability from a traditional sale, as well as to ensure anonymity or facilitate a hostile takeover if necessary. A Houston attorney with experience in business transactions can determine when a holding company or shell company can help you achieve your goals in your sale transaction.