Shelf corporation
Encyclopedia
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:
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. 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.
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 1700 square feet (157.9 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.
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.
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
or corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
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 jurisdictionJurisdictionJurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...
s 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 creditCredit (finance)Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
.
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
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
, Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
, the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
and Western Europe
Western Europe
Western Europe is a loose term for the collection of countries in the western most region of the European continents, though this definition is context-dependent and carries cultural and political connotations. One definition describes Western Europe as a geographic entity—the region lying in the...
, to do so. In fact, it can now be done in as little as a couple of hours in some jurisdictions. 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
Due diligence
"Due diligence" is a term used for a number of concepts involving either an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations...
.
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.
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 1700 square feet (157.9 m²) brick house a few blocks from the Wyoming State Capitol
Wyoming State Capitol
The Wyoming State Capitol is the state capitol and seat of government of the U.S. state of Wyoming. Built between 1886 and 1890, the capitol is located in Cheyenne and contains the chambers of the Wyoming State Legislature and well as the office of the Governor of Wyoming. It was designated a U.S...
. 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.
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.