A shell company is a legally incorporated entity that exists on paper — with a valid registration, PAN, and corporate structure — but has no significant assets, active business operations, employees, or revenue-generating activities. Shell companies serve legitimate purposes in certain contexts — such as special purpose vehicles (SPVs) used in structured finance, blank cheque companies formed prior to a business combination, or holding companies awaiting deployment of funds. However, they are also frequently misused for money laundering, tax evasion, round-tripping of funds (disguising domestic black money as foreign investment), pump-and-dump stock manipulation, and circular trading. In India, the Ministry of Corporate Affairs (MCA) struck off over 2 lakh shell companies between 2017 and 2022 as part of a major corporate governance clean-up initiative. SEBI has taken enforcement action against promoters using listed shell companies to manipulate stock prices and siphon funds. For retail investors, stocks of shell or near-shell companies — identifiable through zero revenue, no tangible assets, and frequent name changes — carry extreme risk of regulatory action and permanent capital loss.
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