What is a Shelf Corporation?
A shelf corporation is a business that is formed to be sold after an aging period aka being “put on a shelf” hence the name shelf corporation. They are also known as a “shelf company” or an “aged corporation”. Shelf corporations do not conduct business activity or hold any assets.
Shelf corporations often come with employer identification numbers (EINs) from the IRS. Generally, they also feature several years (or even decades) worth of filed tax returns and even a business bank account with a credible financial institution. All of this historical information makes the be business seem more legitimate without actually doing any business.
They are most commonly formed in states with corp friendly tax policie, cheap filing fees, or low regulation like Delaware, Nevada, Wyoming, Montana, and Texas.
Why buy a shelf corporation?
Entreprenuers are always looking for a way to get an edge for their business. Since shelf corporations have an existing credit history they can make it easier for them to obtain business financing, lines of credit, etc.
Get business financing right out of the gate as a new business the same way that a more established business? Sounds great!
But if something sounds too good to be true, it usually is. If you purchase a shelf corporation then leverage its credit history to get loans, lines of credit, or any other financing you could be guilty of fraud.
Are Shelf Corporations Legal?
There is nothing inheritantly illegal about a shelf company, but there is some grey area when it come to how they are used.
If you purchase a shelf company then use its credit history to procure financial services your most likely breaking the law. You might get away with it…or you might not. Either way, it’s a pretty big risk to take.
According to Experian, off-the-shelf companies were formerly used to streamline new business startups. “However, selling [shelf companies] as a way to get around credit guidelines is new, making them unethical and possibly illegal.”
What are shelf companies used for?
- Access to commercial credit, like loans and credit lines, by skipping the normal time to establish a business credit history.
- Avoid a personal guarantee for commercial financing.
- Skipping filing paperwork by purchasing an established corporation.
- Ability to bid on contracts that require a certain length of business history before bidding is allowed.
How Much Do Shelf Corporations Cost?
Prices for shelf corporations vary based on several factors. One of the biggest is its credit history and the company selling it. The longer the credit history the higher the price.
In most cases a shelf corp will sell for somewhere bewteen $1,000 – $5,000, but in some cases they can fetch much more.
What’s the Difference Between Shelf Company and a Shell Company
As we discussed a shelf company is formed to age and build a credit history without actually conducting businesses. A shell company on the other hand is formed to hold money or assets for an organization or business entity usually for the purposes of hiding money from tax collectors, law enforcement, public knowledge, etc.
Like a shelf company, shell companies are not illegal, but are often used to do illegal things, like tax evasion.
There are legitiment uses for a shell corporation. Like:
- Hiding product development from a competitor
- Hold funds for impending business takeover or buyout
- Public figures may use a shell corp to hide money from nosey reporters, stalkers or from the public eye.
- International businesses may use a shell corporation for tax purposes in which ever country they conduct business