Thanks to the so-called Panama Papers being published without being authorized to do so, there are a great deal of both clients and professionals who have been left wondering exactly why businesses that have virtually no active trade even exist at all.
These types of businesses are referred to as shell companies, and this is a term that is used to describe any type of building that is used for some sort of illegal activity. Most of the time, this phrase is used by individuals such as pundits and politicians. However, another term that is used, sometimes just as much, is single-purpose entity.
Whichever you prefer to use, these types of structures have been in existence for literally centuries. Their main purpose is to provide a form of vehicle for commerce, minimize taxation, and offer privacy for those who haven’t committed anything illegal.
There are a wide variety of ways in which shell companies are used. A select few of these include the following:
Probate
Creating this kind of a company has often been used by estate planners to be able to legally put together a succession plan for a person who wants to avoid opening up some kind of ancillary probate proceeding in more than one jurisdiction. It can also be used to avoid a forced heirship foreign jurisdiction, which requires property to be given to a decedent’s children regardless of what their personal wishes are.
Joint Ventures
These can be used in order to provide a way for someone to serve as the proverbial face of a certain project. If a company is created and owned by two individuals equally, then the assets and employees can be owned by shareholders, while the invoicing can be ran through the joint venture.
Privacy
There are some individuals who, naturally, prefer to shield all of their assets away from the public eye. This requires the use of an outside director. Individuals who are housed in countries that have high rates of crimes, such as kidnapping, can typically hold assets in trusts, companies, etc. and request the same treatment for all of their assets in the United States. There are even clients who prefer entities in order to prevent their own children from being able to track down how much the wealth of their family is worth.
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