Understanding Shelf Corporations

Answer 1

For any business, one of the best ways to avoid paying taxes and to give yourself additional credibility would be to incorporate your business. Unfortunately, going through the process of incorporating a business is extremely time consuming and can be very expensive. This often prevents a business from pursuing incorporation. For a company that does not have the time or money to become incorporated, purchasing a shelf corporation instead could be a great option.

A shelf corporation is a company or existing corporation that is not actively involved in any business activities, but still maintains its corporate status. It is referred to as a shelf corporation because it was metaphorically “put on the shelf” while no activity took place. An existing and active company can then go and buy the shelf corporation, which will then allow them to gain the corporation status.

There are various reasons why a business would want to purchase a shelf corporation. The first reason why they would want to buy a shelf corporation would be to instantly gain the corporation status. This could save a company a considerable amount of time that would be spent applying for corporation status. Once the shelf corporation is purchased, the company would then be able to take advantage of all the corporate tax benefits and any other benefits that the state provides to corporations.

Another reason why they would want to buy a shelf corporation would be to give their business more credibility. A company that is incorporated is naturally more credible to investors than a non-incorporated company. This would allow a company to bring in more capital than they would have been able to raise otherwise. Furthermore, when a company purchases a shelf corporation, they are instantly giving themselves more history and longevity because their incorporation date will revert back to the date that the shelf corporation was incorporated.

While this strategy is common for many companies, it is still criticized heavily. Many experts believe that a company is actually purchasing into a bad reputation. Others believe that by obtaining and boast an older incorporation date that they are deceiving potential investors who are interested in the company’s experience.