A shelf corporation is a full and legally established company that remains inactive and having no existing operation and assets. The mere fact that it contains the word “shelf” means that it is put or stored on a shelf for a few years and then sold to business buyers.
The main idea of shelf corporation is that time gives much credibility and quality to a certain business entity. It is like a wine stored in a barrel for a long time. The longer it is stored the better its taste as well as the value becomes higher.
The reason behind shelf corporations:
Business buyers consider buying shelf corporations because of several of substantial reasons. One is that they do not have to start from scratch. The business or the company is immediately available for any activity. Additionally, there is already an instantaneous history of the company.
In the US and most of the countries around the world, business credits are only given to businesses which are few years old. You can never get a line of credit from banks if your business is a one or two months old.
In the point of view of the lender, it would not be that risky to issue credit to a business that had been existing for a lot of years. This is a great advantage that shelf corporations buyers enjoy upon purchasing such corporation.
Being able to bid on a government is also one of the best advantages of Shelf Corporation. A lot of government bidding transactions, especially in the United States would require a company at least two years old to be qualified to bid on any agency contracts.
Consumers on the other hand tend to be enticed to a business that shows longevity. Consumers would rather go and purchase a product or a service from a company that existed for years rather than from a start up one. It would just be easy to achieve a good corporate image using a shelf corporation.
Things to watch out:
However, given these advantages of shelf corporations, there are still a lot of things to consider and be careful about when buying a shelf corporation. Since Shelf Corporation has no existing assets and operations, they sometimes exist to cover up tax evasion schemes and other illegal activities.
Taking this regard, a buyer must conduct a thorough investigation about the past history of the corporation before finally purchasing it. It would be a total disappointment to spend a lot of money buying such business only to find out that it was used for illegal activities.
Another thing to consider is your purpose or intention. If your purpose is to be eligible to bid in government contracts, there will be no sense of buying an expensive 5-year old shelf corporation when a two year old one matches this particular intention.
Consider also the price.
Some buyers are willing to sacrifice their budget for other purposes such as sales campaign thinking that shelf corporations include tax benefits. Shelf corporations do not offer any tax benefits as they are also considered as regular tax paid entities.
It is undeniable that shelf corporations offer a lot of business and corporate perks. However, a buyer must really have to spend a thorough period of deliberation before finally purchasing such corporation.
E. Linares is Chief Visionary Architect at Commercial Magnet:: the new face of the online lending marketplace where borrowers and lenders connect. CommercialMagnet.com is the entrepreneurial platform taking business owners from start to funding. Find out how a Venture Capital Loans or Commercial Loans can help fuel your business at commercialmagnet.com.