Shell Companies

[AccentricInv]

Has anyone every thought of purchasing a shell company to hold their public marketable investments, instead of a private fund structure (ie. Biglari or an early Berkshire)?  I've been toying with the thought lately, and like the flexibility it would give to make private investments as well, and was wondering if anyone's done the research or know what costs might be associated with an OTC shell. 

 

It seems like it would provide the flexibility of a private fund, while also having the liquidity of a listed mutual fund.  Is it worth the headache?

[Tim Eriksen]

The challenges are being subject to corporate income taxes instead of capital gains taxes, and the likelihood of falling under the Investment Company Act.  NOLs may be able shield taxes but are limited after a change in ownership.

[rb]

I have thought about it in 2012 when it came out that Mitt Romney had $100M in Roth IRA ( what you call TFSAs in the states). Turns out that in Canada we have laws especially against that. In addition we have a principle based tax system instead of a rule based system as the one in states. Which means that even if you find a loophole the original intent of the law still prevails. So that's not gonna fly up here. And I don't really feel like going to war with the federal government over stuff like this especially since thy got a 400M war chest for stuff like this.

[AccentricInv]

That's a fair point that I didn't think about.  In the holding company situation, investors would be double taxed, vs a pass thru in a partnership or SMA structure.

 

Any idea if it could be structured as a REIT or MLP-like structure, where "income" is "reinvested back into the business" by purchasing other securities or short-term bonds (in lieu of cash which would be taxed) so that you'd never show an income?  That way, you won't be subject to the 90% return of income requirement, and if the biz does return cash, it won't be taxed at the corporate level.  Just trying to brainstorm a few alternative methods to provide the best structure for clients...