A shell corporation is a company that is incorporated but has no significant assets or operations. These types of corporations may be formed as an alternative venture financing mechanism.

Shell company financing works in two ways. In many cases, the shell corporation is created from scratch. The purpose of these shells is to raise money and to get a number of shares outstanding into the public's hands. In most cases, the shares are sold in units. That is, the shares are sold as one share of common stuck plus warrants at the current offering price.

The "empty" shell is then merged with the operating company. The merged companies begin to report operating results and when the results are good, existing stockholders exercise their warrants and provide needed capital into the company.

A second type of shell corporation is formed when the company seeking capital identifies an existing shell or inactive public company (IPC) as a candidate for a reverse acquisition. This typically occurs after a public company emerges from bankruptcy. At this time it may be void of assets other than cash. In fact, the principal asset of the IPC is its often its public registration and a roster of shareholders from which new capital may be raised.

Shell corporations are a quick and cost effective way of taking a company public and raising public capital. However, typically bridge capital is required to finance the process and take the company to a point where investors are interested in exercising their options.