Personally I think shelf corporations are a thing of the past. Yet I get asked almost weekly about their value.
Here’s what I think:
A shelf corporation, shelf company, or aged corporation, is a company or corporation that has had no activity. It was created and left with no activity-metaphorically put on the “shelf” to “age”. The company can then be sold to a person or group of persons who wish to start a company without going through all the procedures of creating a new one. Common reasons for buying a shelf corporation include:
- To save the time involved in taking the steps to create a new corporation.
- To gain the opportunity to bid on contracts. Some jurisdictions require that a company be in business for a certain length of time to have this ability.
- To create an appearance of corporate longevity, which may boost investor or consumer confidence.
- To gain access to investment capital.
- To gain easier access to corporate credit.
These reasons are open to criticism. Many years ago, it would take months to properly incorporate a business.
However, it is now quite easy. In fact, it can now be done in as little as a couple of hours. A corporation might end up “on the shelf” precisely because of a bad business history. It is questionable whether a shelf corporation improves access to capital, since creditors and investors look into a company’s history as part of their due diligence.
A number of consortia “produce” and sell shelf corporations, promoting the fact that the new buyer can at the same time have a corporation with a long history, and yet have complete control over the establishment of the corporation’s board of directors and shareholder profile.
One item to be aware of as you contemplate the purchase of a shelf corporation is the re-aging of the entity. If the credit bureaus learn about the company being under new management they will list it on their reports effectively “re-aging” the company. The only way to avoid this is to make sure the credit bureaus do not find out.
If you are contemplating the purchase of a shelf corporation, be careful as to the vendor you deal with. Companies promoting this item are everywhere on the net. Many charge astronomical fees and more often than not you will end up with a useless entity that does not accomplish what you set out to do in the first place.