When Should You Consider Purchasing a Shelf Corporation?
August 1, 2009 
3 Comments
There has been a growing interest in shelf corporations from many of the investors, small business owners and entrepreneurs that I have the opportunity to speak with on a daily basis. I felt that by sharing some insight with you on shelf corporations and what are the key advantages will better prepare you in making a more educated decision if this is an option you’re thinking about. Now, let’s first cover the basics. What is a shelf corporation? A Shelf Corporation , also known as an Aged Corporation can give you the appearance of being around longer than maybe you have.
Is it better to buy a shelf corporation that has an established credit rating?
Say if you’re looking to Joint Venture with a company who manufacturer’s a product, is it better to form your own incorporation and start from scratch? Or would it be wiser to purchase a shelf corporation that has a credit rating already? What I am trying to get at is, if you want to go into a joint venture that will costs millions of dollars to capitalize, but have VERY little money or assets to start it up, what is the wisest path to take in getting the company to consider your new company for the joint venture?
Your first investment should be in a good business attorney. Unfortunately many businesses have "hidden debts" that may not have been reported to a credit bureau. In most cases it is best to start from scratch. Most businesses for sale to the general public are in poor financial shape. If they where booming they would be acquired by large corporate institutions by multiple bidding offers.
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I respectfully disagree partially with the previous commentary. A good lawyer will protect you when you are entering into the JV, but they will likely have little added value when it comes to a review of the shelf company. Alot of the information(title searches, lien searches, SEC filings) for an adequate due diligence is going to be available to you and contingent liabilities will have to be disclosed. While this does not protect you against gross negligence or willful misconduct, it should give you some comfort. I also assume you are planning to either raise funds through the capital market or through some form of debt financing, both of which are made a little easier if you have a shelf corporation with a history.
Now if you are planning to enter into a JV with a sophisticated partner, it is unlikely they will accept a shelf company without some form of assurances that you will be able to meet your obligations to the partner. Talk to experienced professionals who will help you maneuver around to mitigate your exposures and help raise capital. The capital markets remain pretty liquid right now so your timing could be right.
So good luck and don’t stray from your dreams.
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