What is a shelf company? Definition and meaning
A shelf company, also known as a shelf corporation, ready-made company, blank check company, or aged company (in all these cases you can use ‘company’ or ‘corporation’), is a legally-registered company that has no activity.
A shelf company can be purchased by people who want to set up a business quickly without having to go through all the paperwork.
These types of companies, that can be literally ‘bought off the shelf’, are typically formed and sold by law or accounting firms.
According to Cambridge Dictionaries Online, a shelf company is:
“A company that has been officially created so that it can be sold to someone who does not want to have to create a company themselves.”
The individual or group of people that established a shelf company went to the trouble of creating the business, setting it all up from a legal standpoint, but chose not to do anything with it.
Not to be confused with shell companies
It’s important not to confuse a shelf company with a shell company. Shell companies are typically fictitious entities created for the sole purpose of committing fraud and/or money laundering – though it should be noted that some legitimate businesses use shell companies for legal purposes such as asset protection, real estate transactions, or as part of financial restructuring.
Why do people purchase shelf companies?
People may purchase a shelf company to:
- Save time and avoid red tape.
- To be able to bid on contracts. In some jurisdictions, businesses can only bid on contracts if they have been in business for a specified length of time.
- You may be on the verge of signing a contract or a deal and need a company number rapidly.
- People in the European Union may purchase a ready-made company if they need a VAT number quickly because they are about to import some goods.
- To attract investors or consumers by showing they have been around for a while.
- To gain access to loans.
Business experts say many of the reasons given today are no longer credible. Several years ago it would take months to set up a business, Today, however, in North America, some jurisdictions in Western Europe, and Australia, this can be done in a couple of hours.
Buying a shelf company is not likely to make it easier to get loans, since creditors (and investors) will check the company’s history.
A shelf company may be created in anticipation of an imminent project that is not yet ready for launch. Instead of waiting until later, the business people go through the legal processes in establishing the company in advance so that they can hit the ground running when everything starts.