Q9. Consider the following statements about Shell Companies:
1. They can be set up by business people for legitimate purposes only.
2. Shell companies are companies without active business operations or significant assets.
Select the incorrect answer using the codes given:
Q9. Consider the following statements about Shell Companies:
1. They can be set up by business people for legitimate purposes only.
2. Shell companies are companies without active business operations or significant assets.
Select the incorrect answer using the codes given:
The correct option is A a) 1 only
Shell companies are companies without active business operations or significant assets. They can be set up by business people for both legitimate and illegitimate purposes.
Illegitimate purposes for registering a shell company include hiding particulars of ownership from the law enforcement, laundering unaccounted money and avoiding tax.
With the shell company as a front, all transactions are shown on paper as legitimate business transactions, thereby turning black money into white. In this process, the business person also avoids paying tax on the laundered money.
India, however, does not have a concrete definition of shell companies. Shell companies are not defined in any law or act. However, US has defined the shell companies under their Securities Act. They have taken up the basic definition, hence making it the commonly used one.
a) 1 only
Shell companies are companies without active business operations or significant assets. They can be set up by business people for both legitimate and illegitimate purposes.
Illegitimate purposes for registering a shell company include hiding particulars of ownership from the law enforcement, laundering unaccounted money and avoiding tax.
With the shell company as a front, all transactions are shown on paper as legitimate business transactions, thereby turning black money into white. In this process, the business person also avoids paying tax on the laundered money.
India, however, does not have a concrete definition of shell companies. Shell companies are not defined in any law or act. However, US has defined the shell companies under their Securities Act. They have taken up the basic definition, hence making it the commonly used one.
