{"id":35102,"date":"2018-10-31T15:15:38","date_gmt":"2018-10-31T09:45:38","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=35102"},"modified":"2018-10-31T15:15:38","modified_gmt":"2018-10-31T09:45:38","slug":"decoding-shell-companies","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/decoding-shell-companies\/","title":{"rendered":"Decoding shell companies:\u00a0"},"content":{"rendered":"<p><a href=\"http:\/\/www.thehindu.com\/todays-paper\/tp-business\/decoding-shell-companies\/article19705833.ece\"><span style=\"font-weight: 400;\">Decoding shell companies<\/span><\/a><span style=\"font-weight: 400;\">:\u00a0<\/span><\/p>\n<p><b>Context<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Recently, the Centre has initiated action against more than two lakh shell companies as part of Operation Clean Money. Also, SEBI has identified 331 companies and initiated action against them. Here is all you need to know about shell companies.<\/span><\/p>\n<p><b>What are shell companies?<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Companies Act, 2013 has not defined what a \u2018shell company\u2019 is and as to what kind of activities would lead to a company being termed a \u2018shell\u2019.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Shell companies are typically corporate entities which do not have any active business operations or significant assets in their possession. <\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The government views them with suspicion as some of them could be used for money laundering, tax evasion and other illegal activities.<\/span><\/li>\n<\/ul>\n<p><b>How are shell companies governed in India?<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">In India, there is no specific law relating to \u201cshell companies.\u201d <\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">However, some laws help, to an extent, in curbing illegal activities such as money laundering and can indirectly be used to target shell companies \u2014 Benami Transaction (Prohibition) Amendment Act 2016; The Prevention of Money Laundering Act 2002 and The Companies Act, 2013.<\/span><\/li>\n<\/ul>\n<p><b>How can a shell company be strike off?<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Companies can be removed from the rolls of the Ministry of Corporate Affairs by two means: strike off by Registrar of Companies (RoC) \u2014 (Section 248 (1) of the Companies Act, 2013) and voluntary strike off \u2014 (Section 248 (2) of the Companies Act, 2013). <\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Voluntary closure can be done with the approval of the board and shareholders and the firm should have nil liabilities.<\/span><\/li>\n<\/ul>\n<p><b>Under what conditions, can a company be striked off by the Registrar of Companies?<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">A company is strike off when it has failed to commence business within a year of incorporation.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Also if a company does not carry out any business or operation for a period of two continuous financial years and did not apply for the status of &#8216;dormant company&#8217; under Section 455 of the Companies Act, then RoC issues a show-cause notice to such companies and their directors seeking their response within 30 days. If the response is not satisfactory, the company\u2019s name would be removed from the register.<\/span><\/li>\n<\/ul>\n<p><b>What is a dormant company?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">As per Section 455 of the Companies Act, 2013, a company that does not have significant financial activity or has been inactive can apply to the RoC and declare itself a dormant company.<\/span><\/p>\n<p><b>How is a shell company different from dormant company?<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">A dormant company gets its title in two ways: it has chosen to get a \u2018dormant\u2019 status from the RoC by way of an application and is in compliance of the requirements of Section 455.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Further, in case a company has not filed financial statements or annual returns for two financial years consecutively, the RoC shall issue notice and include it in the register of \u2018dormant\u2019 companies.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">But a shell company is one which is typically suspected of illegal activities.<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Decoding shell companies:\u00a0 Context Recently, the Centre has initiated action against more than two lakh shell companies as part of Operation Clean Money. Also, SEBI has identified 331 companies and initiated action against them. Here is all you need to know about shell companies. What are shell companies? The Companies Act, 2013 has not defined&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/decoding-shell-companies\/\">Continue reading <span class=\"screen-reader-text\">Decoding shell companies:\u00a0<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[555],"tags":[],"class_list":["post-35102","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":300,"cached_at":""},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/35102","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=35102"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/35102\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=35102"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=35102"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=35102"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}