Reading trending news lately and a man on the street might be overwhelmed with the jargons used..
Shell company..
Wikipedia explained that a
Shell Company"it is a company which serves as a vehicle for business transactions without itself having any significant assets or operations"..
Well, I can tell you that many big corporations set up SPVs (special purpose vehicle) for different projects. Is it legal?
Well SPV aren't vehicles you drive on the road. Citing Wikipedia again,
SPV is "A special purpose entity (SPE; or, in Europe and India, special purpose vehicle/SPV, or, in some cases in each EU jurisdiction – FVC financial vehicle corporation) is a legal entity (usually a limited company of some type or, sometimes, a limited partnership) created to fulfill narrow, specific or temporary objectives. SPEs are typically used by companies to isolate the firm from financial risk. They are also commonly used to hide debt (inflating profits), hide ownership, and obscure relationships between different entities which are in fact related to each other (see Enron). Normally a company will transfer assets to the SPE for management or use the SPE to finance a large project thereby achieving a narrow set of goals without putting the entire firm at risk. SPEs are also commonly used in complex financings to separate different layers of equity infusion. Commonly created and registered in tax havens, SPE's allow tax avoidance strategies unavailable in the home district. Round-tripping is one such strategy. In addition, they are commonly used to own a single asset and associated permits and contract rights (such as an apartment building or a power plant), to allow for easier transfer of that asset...."
See the familiar word? Round-tripping.. ;)
Ok, SPVs are commonly used in the corporate world, yeah, local MNCs too..
But though SPV is a form of 'creative accounting', - accounting practices that are controversial, it doesn't always equate to 'compliance failure' to the governing legislation'. Same applies to 'shell companies'.
So don't necessary jump into conclusions that companies falling into these structures are definitely part of a scam.. Though these structures may be subject to abuse..
Well, if all companies, organizations that have such companies are considered as highly likely of committing wrongful activities... Hmmm many of the big names out there will actually fall into this category!
Anyway, in my short stint in the local stock exchange as a sr financial exec, I keep the books of such entities but I'm under the payroll of the local stock exchange.. And nope, there is nothing wrong with that.. And some of these companies are investment holding companies.. Some are deriving trade income.. But accounting functions all in HQ, however management fees are charged in respect of these services..
And yes, even in my current org, a local well-established MNC, this applies too :) so is this a mal-accounting practice? U decide..
And yes, there are related party transactions.. Nothing to be wow about! Just make sure they are pegged to market rate..
Well the papers n social media commentators (whose credentials aren't verified) make it seems like a big deal on the SPV n related party transactions...
Oh well.. If God's money has been misappropriated, I'm sure they (the accused ones) would not have survived for so long.. :)
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