What is a shell company? Neither Companies Act, 1956 nor Companies Act, 2013 give any definition to understand what a special company is. Though the term has not been defined it can be understood that it is a company that is legally registered and incorporated but it is only a shell and does not operate in the economy. The shell company does not have any operational activities, nor does it have operational assets and only acts like a Channel for other purposes. People or businessmen Set up a shell company to evade tax, launder money, hide the real identity is of the owner, turning their money into white money, and defraud people Through various Ponzi schemes.
However shell companies are not always created to mask illegal activities, there are also legal reasons for which a person may create a shell company. A shell company Is created if a company wants to buy another company and does without taking the approval of the management, another reason to set up our Shell corporation is to protect the assets from lawsuits, in case a businessman wants to start a new company he can use a shell company as a means for storing or holding the money temporarily.
Even if a shell company is not necessarily illegal, there are many chances that a shell company may violate some laws of the country. Some acts and statutes attract the illegal purpose of a shell company. Benami transaction prohibition amendment act, 2016, Prevention of money laundering act, 2002, Income Tax Act, 1961, Black money undisclosed foreign income and assets and imposition of Tax Act farmer 2015, And the companies (restriction on numbers of layers) rules 2017.
To identify whether a company is a cell company or not one can do some common checks that include checking if the target is a struck-off company, Or it is flagged as a banishing company or as a defaulting company. It is important to check the P&L statement, And check whether the director is a defaulter or proclaimed offender.
When a company fails to commence business within 1 year, section 248 allows the registrar of the companies registers for strikes off the company. The income tax department also investigates the legal activities and tries to find out all the shell companies. Taskforce Formby ministry of corporate affairs which includes other departments such as RBI, Sebi, department of financial services, Ed, CBI farmers CBE see are all together in the task force.
Since there is no specific provision the deals with shell corporations explicitly common it becomes a huge problem for the Indian economy as they engage in money laundering, tax evasion, etc. And it is very much needed that wide definition is provided that identifies all the illegal purposes or gives scope regarding it and also save gold legal companies.
