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A shell corporation or shell company is a company which serves as a vehicle for business transactions without itself having any significant assets or operations. Shell corporations are not in themselves illegal and they may have legitimate business purposes. However, they are a main component of the underground economy, especially those based in tax havens. They may also be known as International Business Corporations (IBCs), Personal Investment Companies (PICs), front companies, or "mailbox" companies.
A classic tax avoidance operation is based on the buying and selling through tax haven shell companies to disguise true profits. The firm does its international operations through this shell corporation, thus not having to report to its country the sums involved, avoiding any taxes. Christian Aid calculates that the flux of money flowing out from developing countries and deposited in tax havens at 160 billion USD a year [1].
An example of a legal use of shell companies would be suppliers of store brand groceries, who set up shell companies when dealing with hard discounters like ALDI. So by obscuring their business relation with discount chains they do not dilute the value of their main brand, which sells for much higher prices.
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