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Reuters is Causing Hysteria Where None is Needed

August 10, 2011

The latest article by Reuters on shell companies is adding to hysteria about normal business practices.  The author is not reporting news, but is instead trying to justify a pre-determined conclusion established by Senator Levin.  The article contains several inaccuracies and misconceptions that minimal research and education on  the subject could easily dispel.

1.    “Wyoming state legislators will consider three new bills aimed at reining in ‘shell’ companies…”  A shell company is a company with no significant assets or operations.  These bills will do nothing to eliminate such creatures.  The bills raise the fee for non-compliant registered agents, clarify cease and desist orders when companies provide false information, and ban nominee officers and directors.  But none of these laws will stop a company from having no significant assets or operations.

2.   Reuters found that one 1,700 square foot house in Cheyenne is home to more than 2,000 firms, including hundreds of shell companies.  Actually, the original Reuters article carefully specified that more than 2,000 firms were registered at that address.  The address is the location of a commercial registered agent, Wyoming Corporate Services.  WCS also provides virtual business suites, a business tool for creating an office appearance without the commensurate overhead that has been used for decades.  While many companies may give a suite number at that address as their location in Wyoming (required in order to do business in Wyoming), no one other than Reuters has ever suggested that the address is ‘home’ to those companies.

3.   More than 2,000 firms, including hundreds of shell companies.  Yet, Reuters identifies only 3 such  companies, most of which are no longer in existence.  If a shell company is a business with few assets or operations, how did Reuters determine that hundreds are shells?  The only way to do so is to review or audit
each of the companies, one at a time.

4.    Wyoming does not prohibit nominees – individuals who stand in for the real owners of companies to hide their identities.  In fact, nominees serve two purposes: 1) act as an agent for the corporate or individual owner on a board of directors, and 2) preserve the privacy of an owner.  A 2009 United Kingdom case found that nominee directors have the same duty as any other director.  Since the Wyoming law fails to even define a nominee, all it really does is say that a director is a director is a director; something we already know.

5.   Gerald Pitts, the owner of Wyoming Corporate Services, is the principal of 41 firms.  Reuters also reported that neither Pitts nor WCS have ever even been accused of any violation of the law, and are in fact in compliance with all laws and regulations.

6.   Senator Levin’s Incorporation Transparency Act would require states to collect data on beneficial owners.  Federalism, cost and privacy issues aside, how does one identify a beneficial owner?  For hundreds of years, one could incorporate a business without being the owner; attorneys do it all the time.  And how do you collect data where John Doe instructs his girlfriend to create a business and hold ownership of the business, but she still operates the business as he instructs?  This would create governmental regulation every time a business changed hands, or a business wants to bring on new investors.

There are some legitimate law enforcement concerns here.  But Reuters ignores the equally legitimate business concerns.  Reuters does not contribute to a civilized or scholarly discussion of the issues, and does the business community a disservice.

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