A shell corporation is an inactive corporation, or one that is not actively conducting business. This area has become suspect in recent years with most professionals advising against them for various reasons. If you are you thinking of acquiring a shell company, then hire professionals who are highly experienced in this area as there are dozens of ways to get burned if you don’t know what you are doing.
how is it normally formed
Illegal activities generally carried out by a shell company includes tax evasion, bankruptcy frauds, fake services schemes, market manipulation and money laundering. One of the aims of a shell company is to turn the illegally held money into legal wealth for which tax has been paid and the source is accounted for. These companies are typically created by the person(s) that hold(s) the unaccounted money. Once these companies are formed the shares are sold at high premium to other businessmen or investors who are aware of the true reason behind the formation of such companies. The buyers or investors are given coveted deals (coal, land, petrol etc) as a reward.
Often companies that want to hide their actual profits buy and sell through shell companies which are based in one of the tax havens. Transacting through these shell companies ensures that the initiating company does not have to report its transactions (due to the country’s tax laws) and hence is successful in avoiding taxes.