So apparently if you want to start a business, you can buy a “shelf corporation”, that is a corporation that has aged 3 years and then have an easier time getting financing.
What do you think?
Borderline illegal?
Smart business move?
Waste of time doesn’t really work?
Thanks for your input.
M
I think the phrase you’re looking for is “shell corporation.” From the name you can guess that it’s a corporation that exists in name only; no operations, no assets.
No, it really is called a shelf corporation. Shell is different apparently. They are also sometimes called “aged corporations”
Heh. That guy is selling a distinction without a difference.
The website says the difference is:
The corporations which are “stored” also engage in no active business and the site is marketing them precisely so that another corporation can merge with the “shelf,” ostensibly to allow the new corporation to do business more easily.
I’m not aware that it’s illegal unless used for fraudulent purposes (backdating financials to make it seem as if the newly formed company was actually doing business when the shell/shelf was formed, for example), but I can’t think of any real advantages either, save for listing the stock on the pink sheets. Most of the companies who do that are either fly-by-nights or are run by dreamers whom you wouldn’t want in charge of your money. Some investors, such as pension funds, have limitations on investments in companies which have a history of less than three years, but the simple merger of a new business into a non-active shell does not get around that limitation.
There must be some significant advantages, since there are sites all over the web selling these aged corporations. Can anyone give me the straight dope on the whole concept?
Want to buy a penis pump? They’re all over the web too and are proven to not have any advantages. A fool and his money…
For a more realistic analogy, look at all the sites selling offshore trust companies. They try to get Americans to buy them under the guise that it will save them money on their taxes, when in reality, the IRS has many a rule to counter such setups and will bust your ass if you are caught.
There just might be a line on a loan application that asks for the start date of the company. Maybe it helps if you are borderline. But, any good banker is going to look at the history of the company including tax files, bank accounts, etc. If you look for financing and show up with a company that has never had a dime in the bank nor made a profit or loss (blank tax form essentially), nor even had a telephone bill, the person on the other side is going to know exactly what you are doing.
There might be something specific that depends on the situation, state, county, ??? but I think they are just trying to get your money.
-Tcat
lol…Ok I guess you are right Tomcat! Thanks.
That’s an interesting question. There are really two questions here -
“No, no, not pyramid. This is a cone scheme. One hundred percent legit!”
There’s no reason to think it would help. There’s potentially plenty of value to buying a real company with active trade references and ongoing operations, including having an easier time obtaining credit. But a shelf company per se is a worthless scam.
Your question assumes that buying a shelf corporation increases credit-worthiness.
I think the answer to that is simple: find the shelf corporation in question and pull a credit report from D&B to see what information is provided.
My guess is that you’ll rarely find any benefit to credit. I’d be tempted to say never, but I’m sure there’s some outliers that would be an exception.
Credit worthiness is determined by what “my company” judges “your company” to be worth, and how likely it appears you’ll pay me back. I can extend as much or as little credit to you as I choose. There’s no rules there.
There ain’t no FICO for companies in the same way as there is for people. I pull a D&B, check your records, and determine if I’m willing to extend you credit based on what I see there.
Age of open accounts, volume of dollars going through your business, how much credit other companies have extended to you, amount of the business that is on a record somewhere versus what physical assets are literally present at your place of business (is it a cash only business). Etc.
So no, credit worthiness will not be improved by buying an aged corporation unless the person extending you credit hasn’t a clue what to actually look for. In which case, the age of your business can’t possibly matter that much…
Reported.
No, you improve your credit worthiness by increasing sales, improving your gross margins, keep your finances in order, being profitable, and paying your bills on time.
I agree. **keymike **is mistaken. Nobody should do research into shelf corporations because they are a waste of time and money. Starting a small business can be extremely confusing for people new to it, and they all should know shelf corporations are worthless.
Reported.
As is often the case, the answer will depend on what jurisdiction you are in (or what jurisdiction you want the company to be in).
In Australia, for example, shelf companies were the ‘standard’ method of incorporating proprietary companies limited by shares up until very recently. There used to be significant delays in being able to incorporate a company, so shelf companies were used to allow immediate use (so that contracts could be signed etc).
The introduction of online lodgement and similar modernisation has allowed people to incorporate companies almost immediately.
A holdover from the old days is, however, that many incorporation agents retain the words “shelf company” in their business names, and ‘shelf company provider’ is a commonly used term to describe them.
The picture I’m getting is a nursery with row upon row of corporation seedlings in flower pots under grow lights. As soon as they get old enough to withstand being transplanted, they are put up for sale in the front lot. People wishing to own a corporation without having to grow it themselves can buy these. Of course, it is then up to the purchaser to care for and grow the corporation from there, to the best of his ability.
Shelf corporations are very common. Existing corporations will acquire them when needing to conduct an acquisition (merge another company into) and their timeline is very short. They are also useful for executing tax planning strategies. They are legal and many law firms keep many shelf corporations that they can sell to clients for a variety of reasons.
Oh, but most zombies will ignore things on the shelf, unless it’s breathing.
Is that really necessary currently, Omar Little? I can set up a corporation or an LLC in my state in minutes, and I can get an EIN in about the same amount of time.