Over the past few decades, combating tax evasion, shadow economy and illegal employment has been the main objective of the social and economic policy in many countries. This article analyzes the causes of the shadow economy from the perspective of entrepreneurs choosing the most favorable conditions for their economic activities. The authors conclude that the complex and intricate regulation harms businesses rather than promotes social security. Based on the structural equation of an economic agent’s rational choice of either shadow or official sector, as well as on the analysis of the shadow economy origins, the authors suggested the recommendations to mitigate the situation with the shadow processes and improve the business environment in the official sector.