Tip of the Week: Inappropriate Expenses and Compensation for Shells

Public shells may engage in activities that seem commonplace and appropriate for operating companies, including compensating management, hiring public relations firms, paying rent for office space, issuing press releases that disclose important events, and raising money to cover all these expenses.  These are innocuous activities for a public company.  But if a shell company (assuming it is not a SPAC) is engaging in them, it is a sign that someone without the highest integrity is in charge.

It is almost always inappropriate for management of a shell to take anything more than zero or nominal compensation for what is an extremely limited role prior to an actual  transaction, given that management usually already owns a significant equity stake in the shell.

Shells do not need public relations firms, and they do not need to rent office space.  Often the third parties receiving payments for rent or publicity have some business or even family relationship with the controller of the shell.

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