Are you a new business owner looking to get easier approval for business banking?
Are you looking for a way to make obtaining Bank Loans and Credit Cards easier?
Then this might be the most important post that you are ever going to read, and here’s why:
Did you know that shelf companies or corporations can be an amazing tool to scale your business faster and easier when starting?
Here’s how:
The age of your company can greatly affect very positively or negatively the decisions of potential clients, buyers, and suppliers, and especially can flip a decision in your favor by your local bank when they are deciding whether you are going to be approved for business funding!
What’s a Shelf Company?
A shelf company is a registered company that does not engage in any business.
For instance, even though registered, these companies have never traded or conducted business, and they don’t hold any assets or liabilities.
Shelf corporations (you can use ‘company’ or ‘corporation’) have many names.
It is also known as a ready-made company, aged company, or blank check company.
As the name suggests, a shelf company is a company that has been “left on the shelf” to age, waiting for someone to purchase it.
Elements of a Shelf Company
A shelf company has these few elements that help an easy-going business.
- Employer Identification Number (EIN): A shelf company can already have an EIN. An EIN is a unique identification number. This number is needed for tax purposes and employing personnel.
- Filed Business Tax Returns: Some shelf firms may have previously filed tax returns, which can be beneficial in proving a history of tax compliance.
- Business Credit: Depending on the dealer, a shelf company might also have an established credit history. An established credit enables access to funding or credit, which makes the new owner’s life easier.
- Business Bank Account: A financial account allows consistent financial transactions and company control.
- Legal Existence: Shelf corporations have a legal existence since they are registered with the government.
Key Changes to Customize a Shelf Company
If you’re planning to purchase a shelf company, here are a few possible key changes to customize your new company:
- Share Transfer: The buyer should transfer the shelf company’s share to their name or designated buyer once bought.
- Change of Registration Address and Company Name: The buyer can now change the company’s registration address and company name.
- Appoint New Directors: The purchaser can now appoint new directors and other management positions if the existing directors resign.
- Amendments to the Constitution: The buyer may need to adjust the company’s constitution into a more appropriate one if the shelf company only has a standard constitution to meet their business needs.
Advantages of a Shelf Company: The Pros
Not a fan of paperwork? I get it; we all do!
Some entrepreneurs purchase a shelf company to skip all the boring paperwork.
Some buy to make their businesses appear to be more trustworthy or seasoned. Possible clients tend to have more confidence and trust in doing business with a longer functional history.
One of the advantages of a shelf company is that you’re not starting from scratch.
Shelf companies usually have been set up and will only need a few changes to transfer ownership fully.
Other pros of buying a shelf company are:
Time and Efficiency
Time is money!
And with a shelf company, there’s no need to go through the long process of registering a new company.
You can just skip to the good part: Get the shelf company and apply for funding straight away!
All these essential legal and administrative requirements are already done when you purchase a shelf corporation.
And with the time you save, you can now start your operations and grab market chances with much more funding so you can scale your business faster and easier.
A few hours later after purchasing, you can immediately start trading with the company.
Gain new contracts and retain more clients
Try to think of it this way:
Imagine that you’re the client.
Would you rather have business with a new company or a company that shows longevity?
One of the best assets of buying a shelf company is that you won’t go through the time-consuming procedure of registering for a new company.
Imagine you have a dog and need to take it to the vet.
How would you feel if you realized that the vet has actually graduated and this is his first week? Would you trust them to operate on your beloved pet?
Don’t think so…
That’s how your clients look at you, and especially your bank when you apply for business funding.
How much of their money do you think they will trust you with if they see that you are a brand new company?
In what ways can a shelf company help with acquiring suppliers and contracts?
- If you’re starting a new business, it can be hard to secure clients and contracts since you’re considered a startup. Some industries require a company to be registered for a specific amount of time before bids can be made.
- Possible clients might have a hard time trusting newly registered companies. An aged shelf company would promote reliability.
How can a shelf company help increase Client Confidence?
- According to some research, clients favor companies that show longevity as it gives them the impression of being reliable. It provides confidence that the business knows what it’s doing as it is experienced. With a shelf company, it will give the impression that the company has been around for a long time.
Get Approved For a Huge Business Credit Much More Easily
Banking is a crucial and essential part of any business.
A good, professional company should have a business bank account.
Most banks favor aged or older companies to make investments.
A shelf company makes it easier for you to approach any bank for credit cards and business accounts.
Tips on how to get a bank loan for your small business:
- Research lenders and Sort out your Financials
There are still plenty of factors to consider when applying for a business loan. Do your best to research the best loans that fit your needs.
A few of the most common types of bank loans for small business are:
- Business term loan
- Line of credit
- Commercial mortgage
- Equipment Lease
- Letter of credit
- Unsecured business loan
To open a business bank account, your company needs to have a great image. A shelf corporation will make it easier for you to approach banks for loans and credit cards.
Also, review the interest rate, requirements, and qualifying criteria, like credit scores and collateral requirements.
Next is to sort out all your financials. Inquire what information or requirements are needed to go through the application process.
2. Create a strong business plan.
Making a strong business plan is crucial for your small business strategy.
If you’re looking to find loans for your business, a detailed business plan can help picture your vision.
Your plan should also state how you will sustain cash flow to continue managing business expenses and bills.
A strong business plan must include the following:
- Executive Summary
- Company Description
- Products and Services
- Market Analysis
- Organization and management
- Product line
- SWOT Analysis (strengths, weaknesses, opportunities, and threats)
- Marketing and Sales Strategy
- Funding Request
- Financial Analysis
- Appendix
3. Estimate how much you’re going to need.
Before asking for a loan, you should already know how much you’re going to need.
Be open and transparent about the purpose of the loan, how much you plan to loan, and how you will use the loan to grow and manage your business.
4. Review the final offer
Once you’ve successfully submitted your loan application, the bank will now create a loan contract specifically for your business.
You should read and review this final loan offer carefully to ensure everything is okay.
If you’re unsure, consider talking to a financial adviser for help. A financial adviser will have insight into different financial institutions and various loan programs.
Before signing, check if you agree with the contract’s interest rate, term length, collateral, and other fees.
Government contract biddings
Similarly to banks or lenders, many government contracts require a specific time in business for a company to be eligible to bid on them.
Acquiring a shelf company can give you the power to bid on these contracts since you already have the necessary time in business.
Are Shelf Companies Legal?
Absolutely! Shelf companies are perfectly legal.
Don’t people buy and sell companies every day?
Look at Warren Buffett or Robert Kiyosaki…
As we’ve tackled earlier, these companies are registered and have legal existence. However, financial experts suggest it exists in a legal gray area where these corporations are used illegally.
For instance, consider that the terms “shelf company,” shell corporation, or “shell company” have been linked with illegal activities such as money laundering, fraud, and tax evasion in the publishing of The Panama Papers in 2016.
Which brings me to my next point…
Shelf companies also have some problems.
Disadvantages of a Shelf Company: Financial Crime Risks
Even though legal, shelf companies can still be used for illicit activities.
For instance, you can buy a shelf company and use it to manipulate the credit system and obtain financing you can’t get, which is considered fraudulent.
Shelf companies have their risks. The ACAMS New York Chapter held an event titled Shelf Companies and their Financial Crime Risks. During this event, panelists discussed that shelf companies are being used as a vehicle for financial crimes.
They tackled an entire industry backed by “enabler lawyers” focused on the creation and sale of shelf companies. They advertise these companies by creating fake logos and websites.
Companies that have more longevity and previous transaction history are more marketable since it gives an assumption of legality.
Shelf companies are technically legal. However, it can become illegal when they are used to.
If you want to purchase a shelf company, look at this list below! Here’s a list of a few possible risks regarding shelf companies:
Scammers
If you choose to go on this business journey by yourself, there’s a high chance that you’ll get scammed.
Scammers are also prevalent when it comes to shelf corporations. Some scams will require you to pay large amounts of money for a shelf company that will have a lower value.
Consult with a financial adviser before jumping the gun, and make sure that buying a shelf corporation will benefit your startup.
Age is not enough to get bank loans
Are you buying a shelf company to get bank loans?
Well, hate to break it to you, but shelf corporations are not eligible for all types of loans.
Remember that age is not the only factor banks look for.
Banks also review your business history, revenues, and tax returns.
Shelf companies may also not be eligible for some funding, particularly if the business plan states that you’ll be borrowing money or raising capital.
High Price
Shelf companies aren’t cheap. When it comes to shelf corporations, the older the company is, the higher its cost.
How Much Does A Shelf Corporation Cost?
It will take time to determine the specific amount of a shelf company since it will depend on its age.
But on average, these companies can start at around $600 and can go higher up to $50,000.
Hidden liabilities
A shelf company should be inactive and not be doing any transaction or business. It also should have any assets or liabilities connected to it.
Unfortunately, some shelf companies might have hidden liabilities while buying the company.
Lawful Risk
A shelf company may be associated with illegal risks. For instance, it is unlawful for a buyer to use a shelf company to manipulate the credit system (to get loans or lines of credit), which he is not eligible for.
Frequently Asked Questions
What’s the difference between a shelf company and a shell company?
Shell companies only exist on paper, while shelf companies are registered companies that are “put on a shelf.” They differ in purpose, legitimacy, regulation, and activity.
What is the purpose of a shelf company?
A shelf company’s main purpose is to have your company be perceived as having longevity and reliability by possible investors, bankers, and clients.
Can you change the name of a shelf corporation?
Once you’ve bought the corporation, you must appoint new officers and directors. During these times, you’ll also be able to change the name of your new company.
Advantages of a Shelf Company: Summary
Shelf corporations are registered companies left on a ‘shelf’ to age. These companies are inactive and don’t do business or hold any assets.
There are plenty of benefits to purchasing a shelf corporation.
One of the best advantages of buying a shelf company is that you’ll be able to save so much time since you’re not registering for a new company.
An off-the-shelf company can also help you by easily getting approval for bank loans and credit cards. Also, shelf corporations build confidence in clients.
Some businesses or even government authorities only do trades with older companies.
However, there are also the disadvantages. Shelf companies can also be a lawful risk since these companies can be linked to illicit activities such as fraud or money laundering.
So, if you don’t do your own due diligence and you don’t buy shelf companies from someone that you can trust, you can get into a lot of trouble.
Shelf companies give startups a unique chance to get credibility and financial advantages.
Even though these are not the traditional way to business ownership, the advantages of a shelf company make them a great asset for aspiring business owners.
