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:
- 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.
- Absence of specific law to deal with the shell companies. They are covered partly be PMLA 2002, Benami act and companies act, 2013.
- 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.
- Shell companies are used for lowering down the profit and hence the tax liability. This ultimately lead to lower tax revenue.
- Shell companies are used for funding political parties. It also increase the role of money power and intrusion of black money into Indian market.