What do you know about shelf corporations? ready set go

[Doctor_Jackson]

@Caffeine.addict

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.

The difference is that a shelf corp has a ‘history’, it’s been around for a few years. That makes a difference in obtaining corporate financing.

[Omar_Little]

@Caffeine.addict

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.

Delaware corps are not as easy to set up, and Delaware is a favored state to incorporate for various reasons.

[Quercus]

@Doctor_Jackson

The difference is that a shelf corp has a ‘history’, it’s been around for a few years. That makes a difference in obtaining corporate financing.

I’m confused. If a business is really brand-new (i.e. it has just started actually doing anything), why should a lender care whether the corporate papers were signed several years ago, by people different than the current owners? That has nothing to do with the likelihood of the business making money (and the owners paying off debts).

Now, if the lender was told that the business actually has been actively doing things and making money for several years, I could see that making a difference to the lender. But that would be lying to the lender, which is I think generally known as criminal fraud.
So what’s the point of a shelf corporation?

[Doctor_Jackson]

@Quercus

I’m confused. If a business is really brand-new (i.e. it has just started actually doing anything), why should a lender care whether the corporate papers were signed several years ago, by people different than the current owners? That has nothing to do with the likelihood of the business making money (and the owners paying off debts).

For the same reason an 18 year old has trouble getting personal credit. One of teh factors in giving credit is how long the entitiy has “been in the game”. It is easier for an slightly easier established company with no credit record to get financing that a new corp with no credit history. From here:

Most potential creditors or business resources are less likely to extend credit or lend to new or up-start corporations. By approaching them as an established corporation or company, the more likely your business has the opportunity to have access to credit lines, banking relationships, leases, and so on.
For example, during the initial stages of building business credit there are some vendors that will only extend credit to companies that are at least two years in business. In some cases they also require a personal guarantee if the business is less than a year old. By purchasing a shelf corporation that’s three or even ten years old can drastically increase the number of credit opportunities available to you.

It is certainly not the only reason people buy shelf companies, but it is one.

[Caffeine.addict]

@Omar_Little

Delaware corps are not as easy to set up, and Delaware is a favored state to incorporate for various reasons.

Its been a few years since I had to deal with it, but I seem to recall that some of the incorporators could set one up pretty fast.

[lisiate]

reported

[Dewey_Finn]

Reported.

[msmith537]

@Caffeine.addict

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.

Those are probably shelf corporations. The obvious benefit is that you don’t have to spend months filling out paperwork to create one.

The other benefit is presumably to appear that you have been in business for a few years to customers or when bidding on projects.

[Caffeine.addict]

Not all all. In Virginia, you can file online with the state to create one. Getting an Ein is roughly as fast.

[numcle]

@Omar_Little

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.

Omar Little : could you elaborate on using shelf corporations for mergers and acquisitions and executing tax planning strategies?