How to fund your business using a shelf corporation

Small and medium sized businesses often find it troublesome to acquire loans from banks and other similar financial institutions. This is because of the harsh policies of credit lenders which require the businesses to meet borderline unrealistic expectations. Disappointed, due to lack of funds, obviously these businesses shut down, or postpone their plans of expansion. 

 

Today, we’re going to introduce you to a new avenue of obtaining business credit - Shelf Companies.

 

Going by the name, Shelf Companies mean companies that you can buy - off the shelf. These companies were incorporated a while ago, but generally don’t involve themselves in any business activities. This way, they’re available to potential buyers as readymade companies. Let’s understand this with a simple example. Let’s say a company XYZ Ltd. was incorporated in the year 2015 as a shelf company. XYZ Ltd. involves itself in no business activities, has no assets, liabilities, or trading history. It simply exists (on the shelf) and complies with any legal proceedings that need to be met. Until, after enough time has passed, and the company is ready to be sold to an interested buyer - for many reasons, which have been touched upon later in the article.

Since these shelf companies remain inactive for so many years, left to age, they are also often known as aged companies.

 

Some of the major advantages that Shelf Companies offer include:

 

Incorporation of a company is cost and time intensive, and overall is a lengthy process. Even though the efforts required for the incorporation of a company may have reduced since the past, it still is too much strain. Since Shelf Companies are already incorporated, and are ready to buy they save the time and energy of those who wish to start the company (buyer).

 

Just like wine, companies that have been around for longer are more desirable. The number of years a company has been operating for speaks volumes about the experience it might have gathered over the years. From the point of view of a customer, these companies are much more trustworthy, and chances are their products are superior in quality. Companies that have been around longer are also favored by agencies that loan out credit. While buying Shelf Companies, the buyer has the option to choose from  a range of old to young companies, thus opening up avenues to various opportunities. Albeit, companies that are older, also cost more. (where have we seen this before…)  The main reason for this is that, the older the shelf company is, higher are the costs of maintenance that have been spent on the company.

If you play your cards right, shelf companies also offer tax benefits to the buyers.

 

Furthermore, since you can buy shelf companies that have existed for say, n years, without actually going through all the pain of running the company for those n years, shelf companies make a pretty good impression for a rather small price to pay. If you’re looking for investors, the long years could be quite beneficial as investors are more likely to invest in companies that have been around for longer and passed the test of time.

 

Many times, people get confused between shelf and shell companies and use the two interchangeably. The two, although share certain similarities, are not the same. As it has already been mentioned, shelf companies are companies incorporated with the intention of being sold after a period of time. On the other hand, shell companies are companies that exist merely by their name. They don’t have any actual business transactions or customers, significant asets or liabilities of their own, throughout their life (unlike shell companies, that go on to have the aforementioned at some point in the future). These shell companies just serve as a medium for transactions for another company. Shell companies usually come with a negative connotation since they have been used for tax evasions, money laundering and other such purposes in the past.

 

Overall, Shelf Companies serve as a powerful financial tool.