What is a Shelf Company

What is a Shelf Company?

A shelf company is already a registered firm that has not traded or done business. It owns no assets or liabilities. The company is incorporated to lie on a ‘shelf’ until someone purchases it. It used to be the best way to quickly get an company without having to spend long hours registering a new one was buying a shell company. However, now setting up a company is far less time-consuming and more affordable than buying and owning a shelf company. Therefore, shelf companies are soon going to become a thing of the past. This article clarifies what shelf companies are as businesses, how they operate and why shelf companies become less popular over time.

The History of Shelf Companies

Many people eagerly awaited their company registration and had a strong need for a company as soon as possible to start immediately. Thus, solicitors, accountants and specialist company formation services would maintain companies not sold on the proverbial ‘shelf’ for potential sale as a pre-registered company. These are known as ‘shelf companies’ or ‘shelf corporations’.

Purchasing Shelf Companies

When a client purchases a shelf company, providers of the shelf company may need to make changes to the company, which can include:

  • Transferring the shares of the shelf company to the nominated buyer;
  • Renaming the registered office of a company to address chosen by the buyer;
  • Changing the incumbent directors for new ones appointed by the purchaser (the process entails forcing out the existing directors to step down);
  • Renaming the company to any name chosen by the buyer.

Shelf companies, which are usually incorporated with common standard constitution, need buyers to make any necessary changes to the constitution upon purchase. Many liked buying a shelf company because it was time efficient. Choosing to buy a shelf company rather than establishing a new one facilitated speedy business start-up, easy access to external financial aid including investments and loans, and prompt openings for bidding or contract engagements.

What are the reasons behind purchasing a shelf company?

Some people obtained shelf companies with longer history so that such companies would be more attractive for potential clients, such as customers, banks, business partners or investors. The perception that the company has a well-established corporate background would improve its credibility. They can also claim that an older company is more legitimate and therefore able to bid on contracts in the jurisdictions that require a minimal business operating term.

Incorporating a New Company

Today, it is easier and quicker to register a new firm. Therefore, people are more likely to register a new company instead of purchasing an existing shelf one. Setting up a company with certain features is much more efficient and less administratively burdensome than changing features. For example, if you set up a new company, you can choose the:

  • company name;
  • registered office and principal place of business addresses;
  • shareholders;
  • what class of shares was issued to each shareholder and their numbers.
  • directors and the corporate secretary of the company.

Many new companies have a standard constitution upon registration. But nothing prevents you from creating a specific constitution. Bare in mind that company registration service providers will most likely charge for the change of their usual constitution.

Also it is cheaper to incorporate a new company since you only have to incur the cost of establishment. If you acquire a shelf company, you have to buy both the company and expenses related with transferring the company to you. For these reasons, there is a significant slowing down of the shelf company registration business.

Although the procedure of registering a company has improved and it is good to set your own company, you can still get shelf companies from providers who offer them. In such a scenario, businesses can also still be referred to as shelf company providers even though they do not sell any shelf companies and just provide services related to new company registration.

Key Takeaways

Shelf companies, which are businesses that have never been active and were put up for sale by a company, used to be a strategic option because of their pre-registered status. They were also cheaper compared to starting a new company. However, the situation has changed – establishing a new company is comparatively quick and cheap compared to purchasing an established one. 

One of the benefits of establishing a new company is that such aspects as its name, registered office, shareholders, types of shares and appointments in key positions such as those for directors and secretary are defined. On the other hand, changing all details in shelf companies to match your needs can be administrative burdensome. As a result, shelf companies are less popular due to the improved process of registration of new business entities. For company incorporation service, contact FastLane Group.

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