A dummy corporation or dummy company is an entity created to serve as a front or cover for one or more companies. It can have the appearance of being real (logo, website, and sometimes employing actual staff such as for public relations) but lacks the capacity to function independently. The goal of a dummy corporation can be to conceal true ownership and/or avoid taxes. A dummy corporation is one way to cook the books in a dishonest attempt to hide the true financial status of a company. Another use is to prevent speculators from interfering with the holding organization's plans.
An example of a dummy company is the now-defunct Japan Asia Airways (JAA). JAA was created in 1975 as a fully owned subsidiary company owned by Japan Airlines (JAL) designed to fly the Japan-Taiwan route, which was a politically sensitive issue due to Japan's normalization of relations with the People's Republic of China.
Another example is Walt Disney World Company use of Compass East Corporation which was incorporated in Delaware on December 7, 1964. On September 30, 1966, Latin-American Development and Management Corporation, Ayefour Corporation (a pun on Interstate 4), Tomahawk Properties, Incorporated, Reedy Creek Ranch, Incorporated, and Bay Lake Properties, Incorporated, all Florida corporations, were merged into Compass East Corporation. These companies were responsible for buying up the land that would become the Walt Disney World Resort.
Sometimes natural conservation groups use a dummy corporation to purchase land. The current owners might be reluctant, figuring they are not getting the best price for a non-profit, but if the purchase is to a dummy corporation with "land development" in the name they might be more willing to sell.
At times governments might set up dummy corporations to hide actual intent. Air America was an American passenger and cargo airline covertly owned and operated by the Central Intelligence Agency (CIA) from 1950 to 1976. It supplied and supported covert operations in Southeast Asia during the Vietnam War. During the 1979 Iranian Revolution, the CIA set up a fake Hollywood film studio called Studio Six to aid in a plot to sneak American hostages out of Tehran.[1]
Contents |
Dummy corporations may be created by fraudsters to create the illusion of being an existing corporation with a similar name. Fraudsters then sell securities in the dummy corporation by misleading the investor into thinking that they are buying shares in the real corporation.
Dummy corporations may be used in crime to hide the identity of a criminal, similar to the use of a criminal alias.