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Comment by BLKNSLVR | Hacker News Reader

"Shell corporations are companies that don’t actually do any business"

This, I think, is a fairly key differentiator between valid and invalid use of incorporation. If a company doesn't do any business, then it shall not have a right to exist as it has no reason to exist, as the reason companies exist is to do business.

One may argue there are other reasons a company may exist, but I'd argue those reasons only exist as an unintended consequence of the ability to exist as 'shields' or 'cut-outs' as discovered by those familiar with the peculiarities of international law and accounting/finance.

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There are various valid use cases for companies without business. Examples include:

- International holding companies: if there is Coca Cola France and Coca Cola Germany that economically belong together, you might not be able to just merge them into one entity for legal reasons (both countries might require you to have a locally incorporated presence). So to ensure that both always have the same owners, you create an international holding company that owns both of them.

- Investment funds: investment funds (especially passive ones) are companies whose only business is to own shares in other companies. There is no "real" operating business.

- Feeder funds: sometimes, the law requires foreign investment funds to create a local shell company to be allowed to accept investments from local retail investors. In this case, the only purpose of the shell company is to fulfill local regulatory requirements with regards to the legal form if the investment vehicle and to provide investors with someone local that they can hold liable in case things go wrong. There is no real business in such companies.

In fact, it is often regulation that requires you to create shell companies. If you want to get rid of shell companies, you should start by removing regulation that requires the creation of shell companies with no real business except to satisfy the regulators.

Are you not giving more examples of how shell companies are created to get around regulation here?

I.e. an indicator not really following the spirit of the regulation, only the letter?

No, that statement is a subjective assessment.

Any company, including shell companies, will have business activity on paper. In other words, there are invoices, financing or a combination.

This is why it’s difficult to define shell companies. A more realistic proxy is to look at the ratio of employed people by the particular entity to revenue or some other financial metric.

Most shell companies don’t have many employees while the financial figures might be huge. Again, this might be a bona fide structure as part of an international holding but at least you have an objective filter as a starting point.

Hasn't there been a lot of talk about AI enabling the 1 person billion dollar company recently?

This isn't my area but I feel like they might be kind of easy to define. They're wrappers around their inner companies. I'm sure nothing has been done because pretty much every corpo lobbyist represents a company that uses them.

the problem here is that most companies are wrappers around inner companies.

> If a company doesn't do any business, then it shall not have a right to exist as it has no reason to exist, as the reason companies exist is to do business.

One typical use of shell companies in mineral exploration is to obfuscate regions of interest from the prying eyes of competitors.

If some wants to gather lease ownership of a large number of small leases in (say) a province of Canada then it's a matter of public record that mining|exploration leases change ownership in public records.

The end goal here is to publicly declare ownership after exploration results (geochimistry, prelim drilling, etc) have been assesed by third party technical reports and put a prospect on the stock market to attract investors. This gets a bit complex when someone else owns a band of rights dead centre through your ROI.

This is a use of shell companies that's distinct from hiding assets from taxation, it's obfuscation for the purpose of getting ducks lined up before going public.

I'm not sure if corporations need a right to privacy...

It's obfuscation not a right to keep a secret .. databases such as

https://www.spglobal.com/marketintelligence/en/campaigns/met...

get around such things through the power of cross referencing. Initially with a lot of manual trawling through microfiche records, later with computer assistance and digital records, recently with fully automated approaches.

Why is the lease information a matter of public record?

It's regulation in a great many countries about the globe that mining lease data is recorded and made available to "the public", eg: in the US this is largely handled by the BLM: https://www.doi.gov/ocl/blm-lands-leasing

As to the existantial nature of your question, you might try The Evolution of Resource Property Rights by Anthony Scott, perhaps look back to Roman Doctrine and how their laws carried forward in Western civilisation, look to Chinese history, etc.

There's a brief narrow overview of some of that here: https://www.pheasantenergy.com/mineral-rights-history/ and a whole lot has been written about "The Commons", etc.

So is it a problem that corporate secrecy allows people to do an end-run around the intent of these regulations?

The intent of the regulations is to record who is searching for what and where (ie. can be contacted and are responsible for property damage, spills, destruction, etc) to have one prospecter per parcel, etc.

Can you point out a country where it is explicit that the intent is that (say) Rio Tinto has to directly list head office on every lease in the country and cannot spin off a copper division, an iron subgroup, a rare earth exploration subsidiary, etc?

Interestingly, outside the USA, this can be the case! In my jurisdiction (Vietnam) I have to do a yearly audit proving that I do business, or I can lose my license.

Additionally, as the owner I must have up-to-date contact information in a public registry, have at least one employee, and rent a physical workplace where I can receive mail. Officials come by to check once in a while.

I think at worst I've gotten a few extra spam calls from all this, but not even that many. On the other hand, I use the registry to look up companies before deciding to sign a contract with them. A couple of times this has saved my clients or I from being the victims of fraud. I really don't mind it as far as systems go.

Anyway, I agree with you, and for the legitimate cases where "companies that don't do business" make sense, maybe we should create some other instrument to handle them -- because like you, I find that there are a lot of cases that don't make sense.

Sometimes we need to incorporate a shell just to have cleaner legal agreements. A typical investment firm may have dozens of special purpose vehicles just to manage shareholders.

Not that simple - as in, a company that not yet does business but may. That may be financed for that.

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