The term “shell company” is narrowly understood as a public limited company which has largely ceased its operative business but whose stock exchange listing still exists despite minimal sales turnover. In practice, these are usually former traditional companies of the Old Economy which have experienced an economic decline due to structural changes or severe management errors. The actual inventory which this comes from is structurally weak industries such as railway companies, breweries, mining companies or mechanical engineers. In addition to this are, of course, companies which came onto the stock-exchange at the peak of the New Economy in the late 1990s. In this case, it often became apparent very quickly that the business model was not sustainable and these companies either went into insolvency or were able to close down or sell all loss makers, and “survive” with the remaining assets.
The common factor for these companies, apart from the loss in operative sales revenues, is that, after a delivery versus payment (DvP) sale of the relatively easily payable asset items, only part of the remaining stock of hard-to-use basic assets remains, or other assets which are currently not sellable or only sellable with large depreciations. The stock exchange listing of the shell generally represents the deciding value for potential buyers. If the shell company is purchased, the company’s new owner can flexibly change the corporate purpose and incorporate its own forward-thinking business potential into the company.
Shell companies enable an alternative means of going public without the long-winded, complicated proceedings of the traditional IPO process. The entrepreneur controls the concept of going public itself and is not dominated by banks, advisors, lawyers and auditors. Shell companies offer the entrepreneur with a high degree of independence from its credit-providing banks through a quick and easy path to the stock exchange, and enable direct access to the capital market and therefore the acceptance of interest-free share capital (equity capital).
Shell companies also enable a clear increase in the popularity of the company through its future positioning in the capital market.