What Is a Dummy Company

13 April 2022

Blog post

A fictitious company, also known as a dummy company or letterbox company, is a company that can be quickly formed to serve as a front for at least one company. Although fictitious companies seem real, they are controlled by the companies and entities that protect them. Glencairn, Ltd was an American company operated by sinclair Broadcast Group in the 1990s when legal duopolyes were not legal by the Federal Communications Commission. The initial capital was provided by Carolyn Smith, wife of Sinclair founder Julian Smith and mother of current Sinclair CEO David Smith. Carolyn Smith also controlled 70% of Glencairn`s shares, eventually reaching 97%. It has been reported that multinational security conglomerate Blackwater Worldwide has received more than thirty front companies to receive million-dollar contracts from the U.S. government. After the reaction against Blackwater`s “reckless misconduct” in Iraq, the security company managed to secure lucrative U.S. contracts between several subsidiaries. [3] [4] On the other hand, parties who are concerned about entering into contracts with a fake company and signing a contract with less than ideal terms can take steps to protect themselves. First, they may insist on a specific provision of the procurement that excludes an undisclosed procuring entity — or a specific procuring entity with which it does not wish to negotiate — from asserting a right under the procurement. Second, they may contain a provision prohibiting the assignment of the contract. In some situations, organizations focused on special interests or causes may also create fake businesses to advance their cause.

Governments may also participate in such activities, either to gather information or to promote an economic objective. In 1867, the Union Pacific Railroad formed a fictitious company called Crédit Mobilier. Union Pacific has told the federal government that Credit Mobilier will be the company that will build the eastern part of the first transcontinental railway. The German government gave Crédit Mobilier about $150 million for the construction of the railway. After receiving the grants, Union Pacific took most of the money and bought its own shares. These actions were then used to bribe politicians, including the Vice President of the United States. Although the contract between the seller and the fake company seems to have two parts, it actually has three: the seller, the fake company, and the real buyer. According to the principles of agency law, the dummy company and the buyer are parties to the contract signed by the fake company.

Both can sue to enforce the terms of the contract, and both are responsible for any breach. In 1999, the FCC relaxed its ownership rules and allowed one company to own two stations in the same market starting in 2001. This development brought the Sinclair-Glencairn arrangement to light for the first time. At the time, Glencairn was preparing to buy KOKH TV (Channel 25) from Sullivan in Oklahoma City, Oklahoma, where Sinclair already owned KOCB (Channel 34). When the FCC relaxed its rules, Sinclair simply replaced Glencairn as the buyer of KOKH. Glencairn then announced plans to sell five of its stations directly to Sinclair. [7] It later emerged that Glencairn had to be paid for proposed purchases with Sinclair shares and that the Smiths controlled almost all of Glencairn`s shares. Eventually, the FCC fined Sinclair $40,000 for illegally controlling Glencairn. The term “shell company” is sometimes used as a synonym for the term “shell company”. However, a mailbox company is in particular a company that facilitates transactions even if it does not have its own assets.

These businesses typically thrive in the underground economy, but they are not inherently illegal. Letterbox companies are also created for tax evasion purposes. By buying or selling assets through a mailbox company, usually based in a tax haven, a company may be able to avoid taxes. These transactions are not included in the financial reports of the real company. The lesson is obvious for companies that want to hide their identity in a transaction: set up a shell company to negotiate and sign the contract. The issue of false shareholders is a grey area in most jurisdictions, as they can be used to circumvent securities legislation or commit fraud. Fictitious shareholders with large blocks of shares can also pose a particular problem when a company`s management tries to fend off a hostile takeover bid, as there is little evidence as to whether these shares are held in friendly or hostile hands. Fictitious companies can also be created for political reasons. For example, if a company intends to pursue a particular financial strategy but has reason to believe that other companies might block such developments, it may divert attention from itself by letting the fake company act secretly on its behalf. Go Live Critical.⢠Hard credits have been transferred to banners; Soft credits do not.¢ Soft credits must be extracted in Banner.o Create a fictitious record at Corresponding gift conversion for the hard loan amount for employees related to all records with soft credit.o Noelle Hylton will create a fictitious company for conversion and map extraction.o Completed march 15, 2011. The typical industry standard for solving this problem is to use a fake shareholder, a fictitious administrator, and/or a fake bank account signer. These straw men are provided by so-called “nominee services” for an annual fee.

Candidates promise an extra layer of distance and intimacy. Typically, service providers ensure that the candidate`s role is only to maintain the company`s finances and manage interactions with local government, but the business is not managed by the applicant. Under a nominee agreement, a person agrees to hold shares or act as a designated director without bearing the burden and taking advantage of that legal situation; He or she has no right to vote and deserves a service fee. However, under some local laws, it may simply be illegal to act as a candidate. Laws may require that the actual decision-maker be registered as a director and economic shareholder in the commercial register. These rules may invalidate the candidate`s agreement, i.e. the false shareholder with all its limitations or all the agreements could be considered a criminal act. A fictitious company is a limited liability company, so it allows the customer (the person who created it) to hide his identity. Usually, the owner of a shell company can avoid lawsuits and lawsuits, but the customer`s name is disclosed when the company is declared a shell company in court. Raymond Davis, a former committee member from Blairstown, New Jersey, embezzled $46,000 of public funds into a fake company.

The fake self-created company was a way to hide its identity while stealing funds from a complex municipal project. [16] As Silverstein was told, criminals typically “âlay” their networks by creating shell companies and then creating subsidiaries. In addition, criminals usually create offshore bank accounts so that they can transfer their money around the world. .