What is a Shell Corporation?

A shell corporation is an entity with no significant assets or business operations. It is frequently registered by an accountant or lawyer who is in the business of setting up these entities, and which operates the shell on behalf of a third party. If so, the accountant or lawyer acts as an agent for the receipt of correspondence pertaining to the shell entity.

Reasons for Using a Shell Corporation

There are a number of reasons for having a shell corporation. For example, it has just been formed and is being used for the collection of financing before acquiring assets and starting operations. Or, a shell corporation was an active public company at one time, and has been pared down for later use as a public shell company to take another business public. Another possibility is that a shell is being used as a vehicle for tax avoidance. Or, a shell is being used to engage in financial activities in other countries. Another possibility is that the shell is being used to provide anonymity to someone who wants to hide personal assets from other parties, such as taxing authorities, creditors, or a spouse. A final option is that a shell has been created as a ploy by a fraudulent operator, who uses it as a front to attract funds and other payments from third parties; the operator takes the cash from the shell corporation, leaving investors and lenders with nothing.