Purchasing “shelf corporations” can make a difference in your overall credit profile, but there is a much bigger picture to look at. While it isn’t illegal to purchase a shelf corporation, purchasing one doesn’t guarantee you credit and/or loans and can actually hurt you, or simply be a big loss.
What Is a Shelf Corporation?
Starting your own company can be very exciting, and with the right resources can be done for simply a few hundred dollars. A shelf corporation, sometimes referred to as a shelf company or aged corporation, is simply a pre-existing company or corporation that has had zero activity on its credit profile. It has essentially been formed and then “put on a shelf,” hence the telling nomenclature. Although these shelf corporations were created under strict economic requirements, their use as an active entity was halted, allowing the corporation to “age.”
Once aged, the shelf corporation is basically worthless unless it’s purchased by a person or group of persons seeking to start their own company without having to juggle mounds of dense paperwork or jump through hoops of red tape. However, that shelf corporation continues to obtain age and “Season” while it sits.
What Are the alleged Benefits of Buying Aged Corporations?
Aside from using aged corporations with lines of credit to begin a business without all the complicated procedures, people buy one or more corporations for sale because of the following reasons:
- To save some of the time involved in creating a new corporation
- To demonstrate corporate longevity
- To attract customers and investors through the demonstration of longevity
- To gain eligibility to bid on government contracts, as some jurisdictions require a specified length of time as a legitimate corporation to attain this prestigious eligibility
- To attain to corporate credit
The reasons behind someone’s decision to buy aged corporations is always open for debate, not to mention plenty of criticism. Some find the method unethical.
Why shelf corporations Often work well
- Fraud implications: Buying a shelf corporation with the “intent” to defraud creditors/people and convince them that you have been in business longer than you really have, can be seen as fraud.
- Dun & Bradstreet and Credit Issues: Ownership changes are listed on the profile and once that happens credit bureaus and D&B flags the profile and then creditors typically will ask for additional documents to like bank statements, and inquire about the listed ownership change, which will hinder your ability to get credit.
- Companies essentially “reAged”: When ownership changes are listed on the company profile, in additional to creditors/lenders asking for additional documents like bank statements (to see when you opened the account, thus finding out your corps true operation history)
- Unknown Liabilities / lawsuits / Judgement: Any previous liabilities that the corporation had, you now assume liability of when you buy the corporation.
- Back taxes or Government Fees: Any back taxes owed by the corporation and/or state minimum fees (CA state charges $800/year minimum for LLCs) will be your responsibility. The IRS also charges a fee of $200 per month the return isn’t filed.
- Shelf Corps are Often Flagged: It is not uncommon that someone’s shelf corporation is flagged by credit bureaus and creditors refuse to lend to you.
- Your personal credit profile can be flagged: When applying for credit it is required to add a “guarantor” or owner, and their SSN or Tax ID. Once it is discovered that you are working with shelf corporations it is not uncommon to have your personal credit profile flagged.
- Lack of Actual Revenue proof: Without actual revenue being generated and bank statements to back that up it is highly unlikely that you will succeed at your goal of “getting more funds.”
- Ownership changes are easily found: You can very easily search on the Secretary of State and find out the ownership and any changed via the corporations “statement of information”
- Shelf corporations Require Guarantors: Personal guarantees/listing your personal SSN on the application is a normal requirement these days, thus tying you to company if things go south.
Experian stated in 2015: ” Creating companies that impersonate a stable, well established companies in order to deceive creditors or suppliers in another way that criminals are using shelf companies for fraudulent use.”
Is it worth it to pay THOUSANDS for a Aged Corp with an unknown history?
Not likely. You can easily create your own LLC or Corporation with simple steps or pay a professional company to do so for a few hundred dollars.
Brokers of “shelf corporations” typically changed $3,000-$25,000, which in no way is worth it, especially based on today’s technology based society, where institutions collaborate and share data.
You can easily credit a corporation or LLC (and covert to corp: or covert to corp just for taxes purposes) and build your businesses credit. Creditors take a look at the “guarantor” on the application and almost always match the guarantors profile and issue credit based on what you have handled in the past.