An asset is a valuable resource owned or controlled by an individual or business that has monetary value and is expected to provide a future financial benefit. Examples include cash, investments, gold, real estate, equipment, and intellectual property. Assets can be converted to cash, used to generate income, or help cover business costs. An asset can produce income, in present or in the future. An asset may appreciate over time. In business, an asset may generate cash flow, reduce expenses, or improve sales.

In corporate strategy, assets are broadly classified as tangible (physical) and intangible (non-physical), which are further categorized by their liquidity, such as current assets e.g., cash, inventory and non-current assets e.g., property, equipment. Additionally, a strategic view considers assets like intellectual property, human resources, marketing assets, and infrastructure. Strong customer relationships, strong supplier relationship, robust marketing channel relationship brand value, proprietary processes, and even skilled human resources are also strategic assets. “Strategic asset allocation” refers to a long-term investment plan for a diversified portfolio.

We shall discuss types of assets.

Tangible Assets

Physical assets that have a physical form. Tangible assets are physical items that a company owns, their values are measurable and they be touched, such as buildings, vehicles, machinery, cash, and inventory. They are recorded on a company’s balance sheet and are essential for operations. These assets can depreciate over time. Examples include both long-term “fixed assets” like factories, plant and machinery and land, and shorter-term “current assets” like cash and raw materials.

Current Tangible

Current tangible assets are physical assets a company can convert to cash within one year, such as cash in bank, inventory, and marketable securities. These assets are used in a company’s normal operations and appear on the balance sheet as part of its short-term liquidity. Cash in bank account, cash in hand, raw materials, work-in-progress, and finished goods held for sale, marketable securities which include short-term investments that are highly liquid in nature, accounts receivable such as money owed to the company by customers for goods or services purchased on credit are all current tangible.

Non-Current Tangible

Also called Fixed Assets are property, plant, and equipment (PPE), buildings, and machinery. They are not expected to be converted to cash within a year and provide benefits to the business over an extended period, with their value often decreasing over time through depreciation. 

Intangible Assets

Non-physical assets that have value. They are non-physical assets that hold long-term value for a business, such as patents, copyrights, trademarks, and goodwill. They cannot be touched but are crucial for a company’s core competence and competitive advantage and value. These assets can have a definite life like a patent or an indefinite one like a strong brand name. Customer loyalty, brand recognition, and software are also intangible assets. 

Financial Assets

Assets that derive their value from a promised claim, like cash or investments. A financial asset is an intangible instrument whose value is derived from a prescribed claim to future payments, income, or ownership. Common examples include cash, stocks, and bonds. Financial assets are typically more liquid than physical assets and are essential for investment and wealth creation. Examples are cash and cash equivalents, accounts receivable, and marketable securities

Current Assets

Assets expected to be converted to cash or used up within one year. Current assets are a company’s resources that can be converted into cash within one year, such as cash, inventory, and accounts receivable, prepaid expenses etc. They are important for a business’s day-to-day operations because they provide the liquidity needed to pay short-term liabilities like operating expenses, bills, and loan payments.

Non-Current Assets

Assets not expected to be converted to cash within one year. Non-current assets are long-term investments like property, plant, and equipment, intangible assets such as patents, and other long-term investments that a company holds for more than one year. They are not expected to be quickly converted to cash and are used to support the company’s operations over an extended period. On a balance sheet, these assets are capitalized rather than expensed in the year of purchase, and their value is gradually reduced over time through processes like depreciation or repayment.

Strategic asset types

Strategic assets can be categorized into four main types: intellectual property, human resources, marketing assets, and infrastructure. These are the unique, often intangible, assets that a company uses to create a competitive advantage, such as patents, industrial design, trademark, trade secret, brand reputation, specialized skills, and proprietary technology. It includes strategic perspective, sometimes called strategic asset management. Corporate strategy categorizes assets based on their role in gaining a competitive advantage. Intellectual Property Assets such as trademarks, patents, software, and product designs, human resource assets such as skills, expertise, and the knowledge of employees, marketing assets such as brand name, customer loyalty, and distribution rights and technology, plus organizational culture, and proprietary systems are all strategic assets. Strategic assets also include the above given tangible assets, current tangible assets, non-current tangible assets, intangible assets, financial assets, current assets, and non-current assets.

Most shell companies are authentic and legal entities which do not possess actual assets or run business operations. Their main purpose is to run transactions for a variety of firms and for an innumerable shady purposes. Generally, they are used to obtain financing, maintain control over a national/multinational companies to allow favorable tax treatment, which occasionally also facilitates money laundering as other illegal activities. Shell companies exist as non-trading corporations; they are not listed on any stock exchanges for buying and selling by investors. Most exist with only a name, and a mailing address, and on paper as a registered financial entity.

Legal Uses: Majority of shell companies serve legitimate purposes, such as to hold stock or intangible assets such as copyrights, patents, goodwill, trade names, trademarks, mail lists, etc. These assets are often reported at lower cost on the balance sheet after property, plant and equipment. Quite often the intangible assets are of another business entity to facilitate domestic and cross border currency and asset transfer in mergers and acquisitions carried on by a corporation, often they are used for hostile takeovers. Many small-cap companies fall under the category of shell corporations, as they have limited assets and often trade just to keep the company alive. Many Internet startups are shell companies which are kept by corporates to protect their trade secrets or safeguard directors from abductors or gossips. Shell corporations are used by large respectable public companies, as well as shady businessmen and private individuals. Shell corporations are used for avoiding tax and to obtain different forms of financing.

Why reputed companies legitimately set up a shell companies? The number one reason for a domestic company to set up a shell company is to realize a tax haven abroad. Large corporations, like Apple, use shell companies to move jobs and profits offshore, taking advantage of looser tax codes. This is the process of ‘offshoring’ or ‘outsourcing’ work that was once conducted domestically. Another example is to remain within legal bounds internationally, American corporations set up shell companies in the foreign countries in which they are offshoring work. This is legally allowed by the United States, and some say that it’s the U.S. tax code itself that’s forcing domestic companies to create shell corporations abroad. It is understood that shell companies need to conduct financial activity in foreign markets. This allows them to invest in capital markets outside of domestic borders and realize potential tax savings.

While some corporate use shell companies for legitimate reasons, many wealthy individuals abuse shell companies for personal gain. High bracket income people set up shell companies in one or many locations for tax evasion. Many rich people funnel earnings through shell companies in such a way that it isn’t counted toward personal income. Reputed journalists, lawyers, accountants, doctors, architects, educationists have set up their own shell companies domestically and abroad; this just goes out to illustrate how lax international financial regulations are. Setting up shell companies is quite easy.

An article in the Economist magazine has used useful legitimacy scale ranging from “perfectly legitimate” to “deeply dodgy” to rank the shell companies.  It is a fact that nobody knows how many shell companies are used for a genuine purpose, and how many are used for doubtful purposes. The British Virgin Islands, where the majority of shell companies were exposed through the Panama papers story are registered which are over 450,000 companies. However, there is no reliable estimates of the total number of shell companies worldwide. This is quite scary for vulnerable small investors like us. In some of the authentic uses of shell companies, secrecy is kept unnecessary. For example, when an offshore shell company is being used to pool investments, or when a corporation owns a yacht or an airplane and they show it in one of their shell company just to avoid time-consuming bureaucracy, and not to evade tax. This obviously makes it difficult to think of a good reason why the ownership of that company is kept undisclosed. Again, for protection of trade mark, IPR, or patent which is for protecting trade secrets where justification can be given, why organizations become so secretive? Is using offshore shell companies the only way to achieve these goals?

Even if some secret shell companies are being used for legitimate purposes, the direct benefits of these uses go to private individuals and single corporations. However, the costs of the misuse of secret shell companies, in terms of large-scale tax evasion, corruption and crime, are borne by society as a whole and this mostly affect the growth of developing countries. This route is mostly used for laundering illicit money.

The Panama Papers, were the biggest seepage in history, which broke in early 2016; over a period of months, an unidentified man, referred to only as ‘John Doe’, released 2.6 terabytes of documents from the Panama based law firm, Mossack Fonseca. These documents involved everybody from the closest friends of Vladimir Putin, to Ian Cameron, the father of the former British Prime Minister, David Cameron. A random check from Indian database displays about 22   offshore entities, 1,046 officers or individual links, 42 intermediaries and as many as 828 addresses within the country. The leaked documents exemplify how wealthy individuals and public officials have been able to keep personal financial information private. The number of shell companies used by the rich and famous in world is too large. The Panama papers report 11.5 million documents that bring light to more than 200,000 shell companies used by the global elite.

According to some economists, not all shell companies are evil, but it is extremely hard to know who actually owns the assets or funds controlled by a firm. And in two decades of research conducted by Global Witness which is a nonprofit NGO firm established in 1993 that works to break the links between natural resource exploitation, conflict, poverty, corruption and human rights abuse has found that shell companies are the common thread between human rights abuses, environmental degradation, and political corruption, because they can maintain anonymity.