What Is a Shell Company?
Shell Companies refer to those companies who does not have any significant assets or active operations. Usually, they are used for Tax Evasion or Tax Avoidance or carry out illegal activities. You can say a Non-trading firm formed and often listed on a stock exchange as a vehicle to raise funds before starting operations, conduct a hostile takeover, to go public, or as a front for an illegal business. All Shell Companies are not necessarily illegal rather illegitimately.
SEBI on Monday (7th Aug, 17) banned 331 suspected Shell Companies without any show-cause notice. This surprised action pressed the panic button among investors. The Indian Stock Marked is at their life time high, getting shocked by SEBI initiatives and turned negative. SEBI has their own reasons, but there are a large number of innocent investors too. Suspected Shell Companies list has reputed names like Prakash Industries, J Kumar Infra, Parsvnath Developers, SQS India etc. Some companies have given more than 100% return in 2017. SEBI shocked these companies and the investors too. They will likely face graded surveillance measure (GSM) stage VI, where trading in the security is allowed only once a month with “surveillance deposit” of three times the trade value.
What to do now?
If You hold shares in any of the suspected 331 shell companies, You have enough reason to worry. You are getting temporarily stuck, but understand the fact that these firms are being suspected not accused so, You should wait calmly as firms will get a chance to explain their side. Only fraudulent firms penalised and genuine will get cleared off the list. If You get a chance to trade, please do not indulge in fire selling, hold on your portfolio and figure out genuine cases. Otherwise, It will affect both Companies Credibility and Investors Confidence. Be Rational!
Disclaimer:It's our personal views and should not treated as an advice. You need to consult your Advisor before making any decision.
Friday, August 11, 2017
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