A shell company or corporation is generally formed for additional privacy, to minimize taxes or for a specific transaction. There are many legitimate reasons to form shell companies. Unfortunately, there are some illegitimate actors who take advantage of the laws. This has led to the term "shell corporation" having a negative connotation. Below we will cover various ways investors make use of shells in their structure. Learn more here about forming an anonymous LLC.
There is no reason to feel ashamed about desiring privacy. As public records have increasingly moved online it is frightening what is available about us to the wider world. Not wanting your name and address to be posted online is reasonable. We help clients everyday that are trying to protect their assets from prying eyes. Why make it easy for neighbors, creditors and curios bystanders to search for what you own?
Shell companies can be used to place additional barriers between your assets and the outside world. Those desiring to be extra discrete often form anonymous companies in multiple jurisdictions. Layering entities across several private jurisdictions greatly increases the effort someone must undertake to unearth the company's beneficial owners.
Owning a personal home or car via a company does not provide limited liability protection. This is because there is no legitimate business purpose to the company. This does not obviate the privacy benefits, however. The car, home or other asset will still be titled by an anonymous company. This use of a shell is largely equivalent to a personal property or a land trust. Learn more about using a private llc to protect your identity here.
A shell may also be used to route revenue through low or no tax regimes. Routing the money via such regimes requires some extra book keeping, but pays for itself if done correctly. This is a common tactic for multi-national corporations. E.g. many pharmaceutical companies base subsidiaries in Ireland to take advantage of their comparatively low tax rate.
There is no set definition for a shell company. There are as many uses of shell companies as there are investors and their needs. Our clients most commonly use them for privacy. An example would be the double Florida LLC. This set up allows privacy in states which don't at first seem to allow it. We use Florida as an example, but the principle can be applied more broadly. This is just one example of the many ways clients who form New Mexico LLCs use them to protect their identity.
Shell corporations developed a bad name because many used them to illegally evade taxes. This was more common in the 1980s offshore finance industry, but the sector has since matured. There are many legitimate reasons to form a shell company. These include, but are not limited to, desiring privacy, lowering taxes and segregating assets from liabilities.