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What Is a Shelf Corporation? Do I Need One? 

Law Offices of Gretchen Cowen, APC  July 5, 2024

Imagine starting a business with a head start. What if you could skip the lengthy process of establishing a new company and jump straight into a world of opportunities? Wouldn’t it be great? Well, that’s actually possible with a shelf corporation.  

If you are an entrepreneur looking for an easier way to start a business, you might want to learn more about shelf corporations, the ready-made companies that were legally set up but aren’t active. At Law Offices of Gretchen Cowen, APC, we provide legal counsel to entrepreneurs and business owners of all sizes throughout the San Diego metro area. Our business formation attorney strives to be a one-stop source for our clients regarding everything, from forming and registering a business to operating and growing a successful company.  

What Is a Shelf Corporation? 

A shelf corporation, also known as an aged corporation, is a company that has been legally created but remains inactive. Essentially, it's a business entity that has "sat on the shelf" for some time, waiting to be used. These corporations are established with the intent of being sold to someone who needs a company with an operational history. 

Shelf corporations function like any other business entity, but with the added advantage of having a pre-established history. This history can be beneficial in various situations, such as securing financing or gaining credibility with partners and clients. 

Shelf corporations exist to provide entrepreneurs with a quick and efficient way to establish a business presence. Instead of starting from scratch, you can purchase a ready-made company, complete with a history that can help you secure loans, bid on contracts, or gain customer trust. 

Entrepreneurs often use shelf corporations to save time and effort. These entities can be useful for securing business credit, appearing more credible to potential clients, or entering markets that require companies to have a certain age. Regardless of the reason, the convenience of acquiring an established entity is appealing to many business owners. 

Are Shelf Corporations Legal? 

Yes, shelf corporations are legal, but their use must comply with applicable laws and regulations. While the concept is straightforward, the actual implementation must be done correctly to avoid legal issues. 

To remain in good standing, shelf corporations must adhere to all legal requirements, including filing annual reports and paying necessary fees. Failing to do so can result in penalties or the dissolution of the company. 

Who Should Consider Buying a Shelf Corporation?

Shelf corporations can be beneficial for various types of entrepreneurs, but they are not suitable for everyone. If you are any of the following, you could potentially benefit from buying a shelf corporation:  

  • Startups and new businesses. New business owners looking to establish credibility quickly may consider purchasing a shelf corporation. The established history can provide a sense of stability and trustworthiness that can be challenging to achieve with a new startup. 

  • Businesses seeking credit. If securing business credit is a priority, a shelf corporation can be a good option. Lenders are often more willing to extend credit to companies with an established history, making it easier to obtain financing. 

  • Entrepreneurs entering new markets. For entrepreneurs looking to enter markets that require companies to have a certain age, a shelf corporation can provide the necessary credentials. This can be particularly useful in industries with stringent entry requirements. 

One of the main advantages of a shelf corporation is its operational readiness. Because the company has already been established, you can focus on running the business rather than dealing with the initial setup. But that’s not the only advantage of buying a shelf corporation.  

The Benefits and Drawbacks of Buying a Shelf Corporation

Purchasing a shelf corporation comes with both advantages and disadvantages. It's essential to weigh these factors carefully before making a decision. The potential benefits include:  

  • Immediate credibility. An established business history can lend credibility and trustworthiness to your company, making it easier to attract clients and partners. 

  • Easier access to credit. Lenders are more likely to extend credit to companies with a proven track record, even if that track record is simply the passage of time. 

  • Time-saving. Purchasing a shelf corporation allows you to bypass the time-consuming process of setting up a new business, enabling you to focus on operations and growth. 

  • Market entry. In some industries, having a company with a certain age can be a requirement. A shelf corporation can provide the necessary credentials to enter these markets. 

  • Enhanced business opportunities. An established company may have access to opportunities that are not available to new startups, such as government contracts or exclusive partnerships. 

However, every business entity has its drawbacks. In fact, even a sole proprietorship has its benefits and risks. The potential disadvantages of buying a shelf corporation include:  

  • Cost. Shelf corporations can be expensive, with prices varying based on the age and history of the company. This initial investment may be too much for some entrepreneurs. 

  • Ethical concerns. Using a shelf corporation to mislead clients or lenders about the true age of your business can raise ethical questions and damage your reputation. 

  • Legal risks. If the shelf corporation is not maintained correctly, it can face legal issues, including penalties or dissolution.  

  • Limited control. When purchasing a shelf corporation, you may have limited control over its history and past activities. Have your attorney conduct thorough due diligence to avoid any potential liabilities. 

  • Perception issues. Some stakeholders may view the use of a shelf corporation as a shortcut or as lacking transparency, which can impact your business relationships and credibility. 

If you cannot decide if purchasing a shelf corporation would be a good or bad decision in your case, consider contacting an attorney who can review your particular situation and advise you on your options.  

How to Buy a Shelf Corporation

If you've decided that a shelf corporation is the right choice for your business, the next step is to understand the buying process. 

1. Finding a Reputable Provider 

Start by researching reputable providers that specialize in shelf corporations. Look for companies with a proven track record and positive customer reviews. Avoid providers that make unrealistic promises or lack transparency. If you aren’t sure where to look for providers, contact an attorney and they will do the research for you.  

2. Conducting Due Diligence 

You need to thoroughly investigate the history of the shelf corporation before making a purchase. This includes reviewing financial records, checking for any outstanding liabilities, and ensuring that the company is in good standing with the relevant authorities. 

3. Finalizing the Purchase 

Once you've found a suitable shelf corporation and conducted due diligence, it's time to finalize the purchase. This involves transferring ownership, updating corporate records, and filing necessary documents with the state. Make sure that you have all relevant paperwork and information from the seller before closing the sale.  

Interested in Buying a Shelf Corporation? We Can Help

If you're considering purchasing a shelf corporation, you will need to take the time to research reputable providers, conduct thorough due diligence, and understand the legal requirements – or you can hire an attorney to do the legal heavy lifting for you. At Law Offices of Gretchen Cowen, APC, we are committed to helping entrepreneurs turn their dreams into reality. With over 20 years of experience, our attorney can help you make informed decisions that align with your business goals and set you on a path to success. Ready to take the next step on your entrepreneurial journey? Connect with our attorney who can guide you through the process of buying a shelf corporation. Call our office today to have a conversation.