Shelf businesses have a readymade corporate history. There is credibility along with the advantage of accessibility to capital, but risks are also known as unknown liabilities and higher costs. Enhanced Due diligence is also important before buying a shelf company, as one is concerned that it complies with all regulations and fulfills the business objectives. A shelf company then becomes a great advantage for enterprises that are eager to incorporate at high speed and have an instant reputation; however, it requires some prudence and preparation.
Interestingly, in today’s fast-paced business world, you may sometimes be compelled to expedite the process of forming a company. This might be due to reasons such as looking to bid on contracts, a need to demonstrate credibility with partners, or entry into certain markets. In such cases, one will need a shelf company; that is, a company that will provide a platform for businesses to hit the ground running by not having to pursue the rather cumbersome process of setting up a new business entity. In this blog, we will discuss what exactly a shelf company is, its workings, advantages, and disadvantages, and then the process of choosing the right shelf company for your business.
Shelf Company: A Brief Overview
A shelf company is a pre-existing registered, inactive entity created and put aside for use when someone wishes to acquire it. It won’t have a past of operational or financial activity and stays “on the shelf” after being created by its owners, usually commercial company formation agents, until someone buys it. “Shelf” refers to its dormant, idle state, like an unused product waiting for someone to take it off the shelf and put it into action.
These companies are created by incorporation specialists who get these companies registered and administer the filial annual report, payment of all fees required by law, and observance of other local regulatory requirements. Still, these companies lie dormant in that no business activity is carried out until they are bought by a buyer who takes charge and starts operations.
How Shelf Company Works?
Buying a shelf firm is not a very complicated process. Firms or individuals that are interested in purchasing a shelf business get in touch with a formation agent or an outside vendor who maintains a collection of shelf firms for sale. The company’s ownership and control are transferred to the buyer upon their decision to acquire, enabling them to begin operations right away.
Advantages of Shell Companies
- Quick Business Setup
Probably one of the most significant benefits of buying a shelf company is to opt out of the sometimes time-consuming procedure of forming a new firm. Shelf companies work such that there may be quick fixes for businesses that must launch their operations immediately. Businesses looking for permits for certain areas, bidding on government contracts, or seeking funding that requires an established firm would find this very helpful.
- Established Corporate History
An established firm, even though it remains inactive at times, can give an aura of legitimacy and reliability that a newly established one cannot. It can, therefore, leave a greater impression on prospective customers, investors, or business partners. In some industries, for example, finance or real estate, a business may need to meet certain age thresholds to be eligible to conduct specific types of business or to be qualified for certain opportunities. This is a shelf business that can immediately meet these criteria because it has a pre-existing corporate history.
- Access to Finanacial Works
Most lenders and investors would like to conduct business with established companies rather than completely new ones. A shelf company with an existing history can help facilitate loans, credit lines, or investors who may otherwise be hesitant to do business with a young start-up. Having a history of success for a company, even though it is not currently operating, can help businesses raise revenue.
Disadvantages and Risks of Shelf Company
- Higher Costs
Buying an off-the-shelf company often costs more than a ground-up business. The price normally depends on the company’s age and the advantages of proven ground. For some businesses, the costs are unaffordable at face value, typically small startups or limited resource companies; however, to others, the pace and credibility gained is priceless.
- Limited Customization
Another negative characteristic of a shelf company is that it may not fit exactly with a buyer’s branding or business needs. The name, structure, and possibly even the jurisdiction of the original company may not meet the image or operational model desired by the buyer, thus requiring post-purchase alterations. Such changes are costly and time-consuming and somewhat undo the convenience created through the shelf company at the outset.
Concluding Thoughts
Shelf businesses have a readymade corporate history. There is credibility along with the advantage of accessibility to capital, but risks are also known as unknown liabilities and higher costs. Enhanced Due diligence is also important before buying a shelf company, as one is concerned that it complies with all regulations and fulfills the business objectives. A shelf company then becomes a great advantage for enterprises that are eager to incorporate at high speed and have an instant reputation; however, it requires some prudence and preparation.
