A shell company that is characterized by having questionable players, transactions, actions, plans, etc. Having fallen victim to deceptive players’ actions, a shell company may see its desirability to a merger partner decreases. Whenever any entity is contemplating a merger with a public shell, one of the most important factors to take into consideration is whether the public shell company is “dirty” or “clean.” A “dirty” public shell has a great deal of external and internal problems so as to make it a disagreeable merger candidate. Dirty shells can only be detected in proper due diligence. This is usually done through legal, accounting and business due diligence investigation of the public shell and all parties involved with it (such as its management, board of directors, accountants, auditors, attorneys, etc).

Problems in a public shell that can make it “dirty” include, among others, unruly members of management and/or the board of directors, accounting or legal irregularities, unsettled liabilities and other financial problems, lingering disputes with shareholders, poor books and records, and/or not being up to date in all filings required with the relevant supervisory authority (e.g., the SEC) and any securities exchange or stock quotation service on which the shares of the shell company are listed or quoted.