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Overview of updates from August 11, 2023

Protecting Your Businesses from Shell Companies

Indicators that can be used to assess the reliability of a potential partner

Overview of updates from June 1, 2023

Protecting Your Businesses from Shell Companies

Assessing the degree of reliability of a potential partner

Shell Companies

Fictitious companies are a serious threat to trustworthy organizations. Every year, fraudsters come up with new schemes to evade taxes. They open a one-day firm for one transaction and liquidate it immediately after it is done. Some leave such companies to "work" further in order to attract partners to several transactions. Cooperation with one-day companies poses a risk as after a contract has been concluded and an advance payment has been received, the terms of the contract will not be fulfilled.

Main signs of a shell company:

  • The company is less than three years old
  • Lack of own resources, production facilities and offices
  • The founder or head of a company is at the same time a representative of other companies
  • The head is included in the register of disqualified persons
  • The company's address is used by multiple entities as recognized by the Federal Tax Service
  • Unpaid taxes, missing or nil accounts

In this article, we will look at vivid signs of a one-day business, by which you can assess the reliability of your potential partner. For this purpose, we will use the capabilities of Seldon.Basis, a counterparty checking platform.

Company Age

Organizations are established for a short period of time and exist for no more than 1-2 quarters. In 2020-2022, 2,997,634 new companies were created. During the same period 949,433 companies were liquidated, which is 32% of the total number of companies created. The Summary Page in the header of the company profile shows the age of the counterparty.

Suspicious Founder

Signs of a founder of a one-day firm:

  • The founder and director of the company are one person
  • False information submitted the registration of the founder
  • Director of multiple entities

This information will help to identify a nominal director or a fake founder. How can these risks be eliminated?

It is important to check the validity of passport data, check records with the extract from the Unified State Register of Legal Entities, find out the business history of the CEO, check the Register of Disqualified Persons. Information about the head in Seldon.Basis is displayed in the person's profile. You can access it from the company profile as well. It shows the amount of revenue that the company earned during the activity of the head and co-owner, disqualification or absence of the CEO in the register.

Company Address

One-day firms are often listed at a non-existent legal address or an address with multiple entities registered in it.

As a rule, the company is not physically located there. Use the following tools to determine the validity of an address:

  • The ability to see the location of a company on a map helps to determine in advance whether the counterparty will actually be financially active. For example, if the company manufactures something, it should be located in an industrial area, not in a business center.
  • Pay attention to the "multiple-entity address according to the Federal Tax Service" label. The tax inspection keeps a negative register and, if the company is at one of the addresses with such a label, it would make sense to go to the specified address to make sure of the actual existence of the company and the availability of resources to fulfill obligations under the contract.

Lack of data on tax reporting or zero reports

Accounting statements are submitted once a year. Naturally, a company established in the current year will not have them. If the organization has not submitted data on taxes paid and full reports for several years, it indicates that the company does not conduct financial and economic activities, does not participate in market relations and does not report to the tax authorities. When entering into contracts, there are risks of getting under the close supervision of the tax authorities and incurring financial losses. Checking the accounts in advance will prevent this.

We have considered the most important features of shell companies. Statistics on the creation and liquidation of organizations clearly show that fraud is gaining momentum. None of the trustworthy partners is immune from dubious transactions. Each company is responsible for its decisions and actions. All this suggests that it is crucial to check companies before concluding transactions.

Use Seldon.Basis to build a reliable business defense!