Taking Advantage of Loopholes Could Cost You.

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It’s “either the biggest building or the biggest tax scam on record.” President Barak Obama said this about a certain address in the Cayman Islands where more than 12,000 companies are registered as having their corporate headquarters there.

A small home in a quiet residential neighborhood of Wyoming has 2,000 companies registered as having headquarters there. To walk in to this home finds a living room with 2,000 mailboxes and a single occupant feverishly sorting mail for each of these. This company offers services to these non-functioning companies including giving them an attorney so the actions of the company are protected by attorney-client privledge.

These two locations are examples of how a system can be abused, according to President Obama and some state and Federal lawmakers. Just like the stock market, prescription drug program, and welfare system, programs designed to service Americans in a positive way sometimes leave open the opportunity for abuse and along with abuse comes the potential for future business owners to be victims of fraud. This is the government position as they consider future legislation to close alleged loopholes in the business registration system.

For a certain business registration service operating out of a small town in Wyoming. Their website boasts of the fact that by creating a corporation, the legal equivalent of a new person is created with all the rights that is granted to a person and that person could operate as a business selling goods and services. This was largely why the business registration system was created. Becuase businesses are vast and often have multiple people involved in their daily operation, registering a business keeps any one person from suffering harm as a result of the actions of the business.

Each of the 50 states control how businesses are registered and most have little to no regulation or oversight when it comes to registration. This allows businesses or individuals who are trying to gain certain tax advantages or legal protection to create “shell” companies to shield a person from operating within Federal law especially when these companies are created and have their headquarters outside the borders of the United States.

Although there are loopholes in the business registration laws in all fifty states, attempting to take advantage of these can cost you. In one example, a telemarketing company who was being investigated for violating canned spam laws was found to have multiple “shell” or fake businesses to mask their actions. Investigators later filed multiple charges as a result of the investigation of each of these shell companies.  Many states also have laws that require annual reports to be filed for each registered company so the paperwork that can accompany a registered company can be large especially if multiple companies are registered.

The best way to avoid any legal issues is to only register a business for its intended purpose. A skilled business registration company will be able to help you with that process.