When researching the several business structures available within the UK to the possible business owner, there could be so much to tackle board. Private limited firms, public limited firms, sole traders, and partnerships. They’re all routes the budding entrepreneur could consider. But you will have also examine one other business type, the shell company.
On this post, we’re going to have a look at shell firms and explain why they wouldn’t be considered an option for the brand new business owner. Let’s start.
Shell firms: The fundamentals
A shell company (also often called a shell corporation) will not be an official business type that’s registrable with Corporations House, like a personal company limited by shares, a personal company limited by guarantee, a limited liability partnership, or a public limited company.
As an alternative, it’s a business’s actions and traits that result in it being known as a shell company.
A shell company will often:
- Haven’t any employees
- Haven’t any clear owner
- Not partake in any trading activity
- Not have a physical address
- Be registered offshore
Hence the word ‘shell’. A traditional business from the skin but nothing, or little or no, on the within.
The primary purpose of a shell company is to maneuver and hold assets.
Its inactivity is why a shell company wouldn’t generally be of any interest, and even relevant, to someone trying to start their very own business. Shell firms are very much the domain of larger business entities and, as you’ll see below, often people breaking the law.
Shell firms and criminal activity
Shell firms have strong links to illegal/questionable business practices, particularly:
- General criminal activity (facilitated by the anonymity a shell company can provide its real owners)
- Money laundering
- Tax evasion
- Asset concealment
High-profile news stories, corresponding to the ‘Panama Papers’ – where politicians and other figures arrange shell firms for the needs of evading tax – have a big part to play in why shell firms are actually common knowledge.
Why run a business as a shell company?
For the needs of fairness, shell firms don’t all the time operate in an illegal manner. There are some legitimate explanation why a business may look like running as a shell company:
A defunct business
A business has sold all of its assets and ceased any trading activity, however the shell of the corporate stays, perhaps with the intention of beginning to trade again.
Investing in foreign markets
Starting a business – albeit a shell – in an overseas company will sometimes make it easier to buy property and put money into other businesses in said country.
A launch pad
Before a recent business goes live, a shell could also be in place to get the obligatory funds organised.
Benefit from ‘Tax Havens’
Moving right into a grey area, by organising a business overseas, an organization can reap the benefits of less restrictive taxation and tax laws.
Shell firms vs shelf firms
Shell firms shouldn’t be confused with shelf firms. Shelf firms are firms which are arrange with Corporations House (normally private firms limited by shares) with placeholder directors and shareholders, for the aim of selling on at a later date.
The first profit to buying a shelf company is that it gives the look of a business being in existence for longer than it actually has. Nevertheless, that is debatable.
Not only does confusion arise from the similarity of their names, but shell firms and shelf firms also share one other trait, their inactivity. From a shelf company’s incorporation up until it’s sold, it’s kept in a dormant, yet compliant state.
Doing all of your due diligence
Shell firms and their links to illegal business activities highlight the necessity for businesses of all styles and sizes to do their due diligence on the subject of selecting who they work with (whether that is as a customer, supplier, or partner).
There are plenty of ways you could do that:
The Corporations House public register – The Corporations House ‘Search the register’ tool allows anyone to freely look into an organization’s key information, including annual accounts and officer details (corresponding to directors, shareholders, and folks with significant control). By looking into the people behind the business, you possibly can get an insight into another firms that they’re involved with, allowing you to see the massive picture.
Online reviews – If a business is within the service industry, it is extremely more likely to have a trail of online reviews. In addition to listening to the actual rankings, you need to also consider the amount of reviews, how recent they’re, and whether they give the impression of being legitimate or not.
The web site – Whilst a business’s website is curated to color the right picture, you need to still seek the advice of it to ascertain for testimonials from satisfied clients, a contact page that features valid contact information (corresponding to a physical address, email address and phone number), and an ‘about us’ section that mentions real people.
Skilled credit check – Businesses corresponding to Experian and Equifax mean you can check on an organization’s credit standing and rating, supplying you with a sign of how financially stable they’re.
It’s best to also apply the entire above checks to your personal company. This may mean you can see how other people see you and provide you with the chance to repair any red flags.
Thanks for reading
It’s best to now have an excellent understanding of shell firms, including what they’re and the way they’re used (legally and illegally).
We hope you may have found this post helpful. Please don’t hesitate to depart a comment if you may have any questions.