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Shell companies are at the heart of the "Panama Papers," but what are they?

Mark Garrison Apr 4, 2016
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The “Panama Papers” are raising questions about rich and powerful people across the globe using shell companies to stash their wealth. The leaked documents are largely about rich individuals, but high-profile companies use shell companies too.

A shell company is a legal entity that can certainly be shadowy, but is not necessarily good or evil. They can help corporations illegally hide income and evade taxes, or much worse. But shell companies can also help regular companies do lawful business.

Firms often set them up when they want to move quietly, such as a real estate company that wants to buy up multiple properties without signaling its intention, or a tech company that wants to camouflage its next move from competitors. Using a shell company can be preferable in certain situations involving raising capital or expanding overseas. And of course, companies use them to reduce tax burdens in ways that are legal, though extremely controversial.

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