My sister also uses "shell" companies. She is a prominent ex-scientologist and scientology has an established history of using litigation to punish and silence critics and exmembers. So when her car gets rammed, and she gets sued, by being broke she can't pay damages, and the car is owned by an LLC that only owns the car, so the plaintiff is limited in the amount of money they can extort.

She has more than a dozen LLCs just to protect what little she owns.

> And guess who needs untraceable shell companies? Patent trolls.

Why is that?

1. Limit liability. Each threatened action is made by a separate LLC created just for that purpose. The troll's company is not put at risk every time they want to threaten someone with litigation. The LLC does the dirty work.

2. Make it difficult for the target to assert any sort of leverage. If they do not know who is behind the shell, they do not know what resources the troll may have. If the troll is a practicing entity, they won't know if they have any claims they could assert against the troll. All they see is a recently formed LLC that has certain patent rights, and nothing else.

> Limit liability.

IANAL but I don't think a company needs to be "untraceable" to limit liability of its owners.

3. Control bad PR. Warrantless threats of litigation are attributed to the shell not the troll. As far as the press can see the troll is not involved.

A shell limits the liability to $thousands instead of potentially $millions.

One of the big oil companies snatched up long-term leases for potential oil-shale land in Michigan. They made deals with hundreds of parties, locking up the land in exchange for a payment due a year later. Of course the payments were never made. It was all done through a shell that was dissolved when the oil company decided against the idea.

It's a great way to perform GDDOS (geographically distributed denial of service) - set up a chain of shell companies, each in a different jurisdiction, with 100% ownership down a chain of 100 companies. Cost will probably be in the small hundreds of thousands of dollars (for a chain length in the tens to hundreds; much cheaper for shorter chains)

There is no chance anyone is ever going to "pierce the veil" on this, or figure it out - anyone who wants to do that will have a cost 10 to 100 times higher than setting it up -- because to get to the owner, you will have to piece the veil for every link in the chain, meaning you'll have to employ competent lawyers in every jurisdiction.

(Consider: in any single jurisdiction, veil piercing is 10-100 times more expensive than incorporating in the first place; so just amplify this by setting up multiple layers)

That makes me wonder.

What if there was a law that any "company" whose incorporation cannot be demonstrated to actually satisfy certain legal guidelines could automatically lose any legal suit that it was involved in? How many of these shells would disappear?

They would disappear briefly, only to reappear as a new shell corporation. That's the whole point for many of them, no real liability. They hide behind false information, then disappear when it's convenient and start over. So I doubt the threat of an automatic negative outcome during litigation would be a deterrent. The law really only intimidates the people playing by the rules, or trying to.

The thing is that if you sold your patent to a shell corporation, then sued someone, the person can counter-sue saying, "You're not a real corporation, you lose, I get your assets." And now you no longer have that patent to sue with.

This would make shell corporations utterly useless for patent trolls.

"The law really only intimidates the people playing by the rules, or trying to."

A seemingly simple yet profound statement. Thanks for this.