Shelf corporation
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.
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Reasons for buying
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 show corporate longevity in order to attract consumers or investors.
- To gain 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, at least in Australia, Canada, the United States and Western Europe, to do so. In fact, it can now be done in as little as a couple of hours in some jurisdictions. In Australia, a new company can get registered within 10 minutes. 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 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 is the re-aging of the shelf corporation. If the credit bureaus learn about the company being under new management, they will list it on their reports, effectively "re-aging" the company.
Examples
A Reuters report described Wyoming Corporate Services as an example of a vendor of shelf companies, which were literally stored in mailboxes labelled as "corporate suites" in the main room of a 1,700-square-foot (160 m2) brick house a few blocks from the Wyoming State Capitol. Over 700 companies were available at prices depending on their age, ranging from $5,995 for a six-year-old company to $645 for one recently created. It is one of scores of similar businesses setting up shop, primarily in Delaware, Wyoming, and Nevada due to regulatory considerations.[1]
Another example is Companies Incorporated, which has shelf corporations in several states in the United States as well as offshore companies.
References
- "Special Report: A little house of secrets on the Great Plains". Reuters. 2011-06-28.
- Michael Spadaccini, Incorporate Your Business: In Any State (2007), p. 253.
- Mark William Walma, Patricia McCann-Smith, The Fundamentals of Corporate Law and Procedure (2000), p. 54.