Shelf Company Info
Shelf Corporation otherwise known as Aged Corporation
A “Shelf Corporation,” also known as an “Aged Corporation” (or “Aged Company” when referring to an LLC, for example) is a corporation that is already formed, but not in use, and ready for “purchase” by a new owner. There are many reasons that people purchase shelf corporations, and there are certain things to look out for when considering one of these “ready made” corporations.
Why Should I Use or Acquire a Shelf Corporation?
It is responsible to note that age is not the only factor and will likely not be a main factor in business and lending relationships, engaging in business, credit, or real estate agreements. As an established company it can save some time without having to go through the entire process and waiting time frames of establishing a brand new corporation. Most potential business resources are hesitant to engage brand new or up-start corporations. By approaching them as an established corporation or company that has actually been conducting business (obviously, the more years the corporation has been in existence, the better), the more likely your company may be taken seriously and this may grant your business more access to business relationships. To be clear, the credibility increases, in our opinion, when the company is actually engaged in the business and not merely by the number of years the company has been sitting on a shelf. These relationships may include agreements, Dun & Bradstreet-type rating systems, etc., may also all be considered when looking at potential aged corporations. Additionally, it is of paramount importance that these shelf corporations are acquired from trusted sources that know the intricacies of weeding out those with potential built-in or existing liability.
Once you have properly selected your shelf corporation, the company has immediate filing history. Does it give you instant credibility for your company and corporate image? We cannot say that that will necessarily happen. But, what if you choose a company that coincides with the number of years that you have actually been engaged in the type of business that the corporation will perform? Naturally, there is no guarantee that you will instantly be able to bid on state contracts (states generally have minimum longevity rules for companies that are allowed to bid on their contracts), obtain lines of credit easier and obtain loans from the Small Business Administration in your state, and attract potential investors more readily with an “established” corporation. The bottom line is, be honest and let others know that you recently obtained the company, if that is the case.
As is mentioned above, it is critically important that the shelf corporation you are considering not have any inherent or lingering liabilities. For the most part, this can be assured by looking into the history of the corporation and ensuring that the extent of its business activities were limited to the application of an Employer Identification Number and maybe the formation of a bank account.
There are some quantifiable exceptions to this rule. There are times when very well established corporations get shelved, for a variety of reasons, and these can be inherently quite valuable due to their tenure or amount of time in existence. These can be carefully scrubbed for liabilities and exposure by qualified entities, and are in high demand, with the demand and their price increasing depending on how long they have been established.
Simply put, if you are buying an aged corporation directly from its owners, there is a fair amount of due diligence involved: you should be concerned if the person or group selling the aged corporation has engaged in any transactions that may produce some type of future liability for the corporation or its stockholders. This may not always be easy to examine, and certainly requires some expert investigation. The best practices approach is to only acquire aged or shelf corporations from reputable providers (or resellers) who have a history of successful transactions in this arena. These providers can be counted upon to provide indemnification to the purchaser (a guarantee against pre-existing debts or liabilities) for the sale, and to conduct all of the due diligence prior to offering the shelf corporation for sale.
Often times Shelf or Aged Corporations are confused with Shell Corporations, both in terms of definition and their reason for existence. This confusion could not be more erroneous. Shell corporations are completely different entities, both in scope and in formation.
A shell corporation (which may be US or International Business Corporations – IBCs -, Personal Investment Companies – PICs -, front companies or “mailbox” companies) is an incorporated company that does not have any significant assets or operational structure. There are some legitimate reasons for the existence of shell corporations. For example, some shell corporations are, through the extensive filing processes with and approvals by the appropriate governmental and regulatory agencies, turned into publicly traded companies. These companies are often merged with existing businesses in what is called a “reverse merger.” This is one manner in which one can go public quickly and efficiently.
Shelf and Aged Corporation Advantages
- Saving time by foregoing the time and expense of forming a brand new corporation
- Instant access to contract bidding may not be possible in all cases. Most bidding contracts require that your company be in existence for a specified minimum length of time. Be sure to check on a case-by-case basis and use full disclosure as to when you acquired your company.
- Instant company acquisition.
- Corporate filing longevity.
- May be more attractive to potential investors and investment capital. Naturally the proper legal filings need to be made and age of the company, alone, is only considered to be a minor factor.
- May or may not have faster and easier access to borrowing. Again there are other factors that have more weight such as business credit rating and profitability.
Nonetheless, we recommend honesty and full disclosure as to the date that you acquired the aged company.
Shelf and Aged Corporation Disadvantages and Caveats
- Pre-existing liability potential
- Pre-existing debt issues
- Pre-existing business transactions that may lead to future liability