DMPQ: What are shell companies? What are the concerns associated with shell companies. (Economy)

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Shell companies are typically corporate entities which do not have any active business operations or significant assets in their possession.  A shell company may be a legal entity or not.

Issues associated with shell companies:

  1. There is no clear definition of shell companies. Even under the companies act they are not defined. Out of the registered 15 lakh companies only 6 lakh file return annually. This shows the quantum of shell companies.
  2. Absence of specific law to deal with the shell companies. They are covered partly be PMLA 2002, Benami act and companies act, 2013.
  3. Data collection of shell companies and finding about the companies is a daunting task. It is also difficult to distinguish between a genuine and an illegal shell company.
  4. Shell companies are used for lowering down the profit and hence the tax liability. This ultimately lead to lower tax revenue.
  5. Shell companies are used for funding political parties. It also increase the role of money power and intrusion of black money into Indian market.

 

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