What could I do with my own company/shell company?

April 13, 2017 4:03 PM

I've read various articles and news pieces about people who've started/bought a shell company and used it to do various things like own property without it being trackable back to them or buy things they couldn't otherwise buy. What could you do with your own shell company that you might not otherwise be able to do?
posted by Socinus to Law & Government (13 answers total)

I am an environmental lawyer, and I swear to god I'm working on a case where some of the parties are evading(less judgmental term, that should be. They're not lawbreaking) clam harvesting regulations through the use of shell companies. I am a simple person, but I was really, really amused.

(Legally, the issue was that there was a regulation governing which state a party had to reside in. The human owner lived in one state, but they could own a company domiciled in another.)
posted by LizardBreath at 4:31 PM on April 13, 2017

I'm in Canada, so it might be completely different where you are, but a shell or holding company is a good way to move money between corporations while minimizing tax. For example, if you had 2 corps in 2 different lines of business, you'd have to pay a lot of tax to reinvest profits from one into the other. But if your holdco has 2 daughter companies that are investing in each other, I believe the taxation is a little less.
(I am not a financial professional of any kind, but this is how I understand it. I could be wrong!)
posted by bluebelle at 4:57 PM on April 13, 2017

Great Planet Money podcast on this - they went and set up a shell company and talked to a bunch of people what they could with it.
posted by metahawk at 5:11 PM on April 13, 2017

I got myself a Venture One card from Canada Post. It saves me 10% on mailing stuff. (Note: I actually have a 'company'...so I am in fact a corporate customer. What the company does is sort of nothing, but it does legally exist, and does company things sort of automatically, so its not a total cheat). I savor this saving as a small victory every time I mail stuff!. Also, I got myself a CanPar account...but you can actually do this as a person not a company I think.
posted by Northbysomewhatcrazy at 7:18 PM on April 13, 2017

Oh they're not only for skating taxes and other nefarious goals. Perfectly legit uses are to isolate parts of a business from each other. That way you could sell off part cleanly. Or if one part of the business gets dragged down because of debts or a lawsuit, the other parts can survive. Or even keep rational financials if one segment of the business has a windfall or a stupid high profit margin (don't we all wish). Just to throw out an example - say you had significant income from a patent portfolio, and run an unrelated widget store with a payroll, rent, utilities etc. You don't want the royalties mixed in with your store income when figuring out if the store is making money or not.
posted by cfraenkel at 7:21 PM on April 13, 2017

Shells/Holdings are... exploited... because they exist.

A big thing is, you can get on an exchange with a shell company potentially much faster than with a new company.

You can also install a Board of Directors in the shell and have the original company under the shell - the ability to potentially override an existing Board.

Potentially a company can get State residency credentials; a company as an individual with state residency might quality for many numbers of things.
here are legitimate uses of shells and less legitimate uses.

However, lots of shells come from zombie companies who remain entities all but in name (ie., bankrupt company with zero assets but still have a "company" on paper) - people may buy such defunct companies to try gaming the regulatory authorities.
posted by porpoise at 8:44 PM on April 13, 2017

Oh they're not only for skating taxes and other nefarious goals. Perfectly legit uses are to isolate parts of a business from each other.

Er...those are not shell companies?
posted by praemunire at 9:23 PM on April 13, 2017

If you have a company with a fleet of trucks, you can put each truck under its own shell company. Then, whenever one of the trucks has an accident, just declare that one shell company bankrupt and walk away from the liability.

Do people actually do that? Yes, Virginia, yes they do.
posted by metaseeker at 10:21 PM on April 13, 2017

The classic use of a shell company is, of course, to hide assets from divorce. See under asset protection trust.

Are you asking if an ordinary average person might be interested in one? Probably not unless you have enough assets, and a reason to hide them. Corporations incur annual franchise taxes (e.g. $800 in California). An asset protection trust costs something like $10k to set up.
posted by metaseeker at 10:28 PM on April 13, 2017

I know (through online forums and such) a few people who have LLCs registered in places like Montana and Wyoming. The LLC legally owns the RVs so the RVs can be registered in a single (presumably low-tax) jurisdiction while the flesh-and-blood owners bebop around the country. Something like what LizardBreath described but for the small-timer.
posted by fireoyster at 10:49 PM on April 13, 2017

A corporate veil can be used to protect against law suites or limit liability.

J.J. Luna advertises it for privacy reasons.

In some countries you can use a corporation to hold real estate to prevent real estate sales tax (there is a tax for selling real estate but you circumvent this by selling the corporation, not the house).
posted by yoyo_nyc at 12:42 AM on April 14, 2017

I used one before the ACA so I could buy health insurance that was only available to employers.
posted by Obscure Reference at 5:44 AM on April 14, 2017

If you've got a business, an S Corp will allow you to avoid payroll tax (15.3%) on some of your earnings by paying out a distribution instead of salary.
posted by leotrotsky at 5:50 PM on April 14, 2017