What is a Shell Company?

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A shell company is a corporation used in many reverse mergers. A shell company can either be publicly traded or privately held.
A shell company usually is a company that exists but does not actually have an active business. The most notable type of shell company is one that has a listing. This is called a listed or public shell, and is the most common type of shell discussed by investors. With that being said if your browsing around some online message boards and see a reference to buy a shell company then in most cases a public shell company is what they’re referring to. If a shell company in this sense has no active business, and has been in that state for some time, it is likely to be considered dormant and may be exempt from many reporting requirements.

Given that it takes a lot of time and funds to obtain a publicly traded listing or company from scratch, an already public shell has significant value. Public shells are therefore often the targets of reverse mergers or takeovers. When a private company mergers into a publicly traded shell company, it can become public in a couple of quick steps, by filing the necessary legal and accounting details with the Securities and Exchange Commission.

A shell company can also refer to a company that has never had an actual business (and certainly not a trading symbol). In most case these are also referred to as a shelf company. These are incorporated purely to sell off-the-shelf. This offers a convenient alternative to setting up a company from scratch (if required the name of the company can be changed, new directors appointed, and possibly the capability to have more shares issued through filings, etc.).

Finally, the phrase “shell company,” is also used to describe companies that exist merely as a front for a person or organization that wishes to hide its identity.