Shelf CorporationsWhat are They & Are they Legit?

Everything you need to know about Shelf Corporations and whether they are Legal or Not.
Denise Elizabeth P
Senior Financial Editor & Contributor
Last Updated: November 10, 2021
Date Published: May 5, 2021

Small business owners are always looking for ways to expedite their growth, especially when they hit roadblocks in the early stages.

One major hurdle that small business owners have to overcome is financing.

In the early stages of a business, lenders are more hesitant to lend to a business that is not as established yet due to the risk involved.

Shelf corporations are often formed with the purpose of being sold off once they have established an excellent business credit rating.

They are then sold off and have been known to sell for anywhere from $650 to $10,000.

Some small business owners may look at shelf corporations as an opportunity to get ahead.

The problem is that using a shelf corporation to access business financing may actually be fraudulent and can cause some serious problems.

Let’s learn more about Shelf corporations, their purpose, and learn whether they are a good idea or not.

What is a Shelf Corporation?

A Shelf Corporation, also known as an “Aged Corporation” or “Shelf Company”,  is a corporation that is formed but not actually in use.

In other words, the company is legally formed and then “put on a shelf” where it ages for a certain period of time, which can be months or years.

The company doesn’t actually engage in any business activities and usually doesn’t even have any real assets.

Owners of Shelf Corporations often establish these corporations and sell them once they have develop0ed an excellent business credit rating.

Shelf Corporations usually come with employer identification numbers (EINs) and some even have several years of filed tax returns or a business bank account with a legitimate financial institution.

In fact, there are people who make a living on creating and selling Shelf Corporations.

Shelf Corporations are often formed in States that have tax benefits, offer anonymity, have low filing fees and low regulations, or some combination of these.

Common States where you can find Self Corporations include:

  • Delaware
  • Nevada
  • Wyoming
  • Texas
  • Nevada
  • Montana

As mentioned above, Shelf Corporations can sell for anywhere between $650 and $10,000, possibly more.

The younger Shelf Corporations sell for less while the more ages ones will be pricier because of their perceived longevity.

Many companies that sell Shelf Corporations will use certain terms to appeal to their potential buyers.

Some of these terms include: Aged corporations and LLCs, Aged Tradelines, Credit-ready Corporations, and Aged Shelf Companies.

What is the Purpose of a Shelf Corporation?

Shelf corporations allow new or small business owners to engage in business, credit, or real estate agreements as an established company, without having to go through the long process of establishing a brand or business history.

There are several different reasons why business owners purchase Shelf Corporations:

  • Saves time and expenses of forming a brand new Corporation.
  • Most states require that your company be in business for a specified period of time before applying for contracts or government contract bidding. Purchasing a shelf corporation can give you the longevity needed to gain access to contract and government contract bidding projects.
  • Instant Corporate history and credibility in the eyes of potential investors and investment capital.
  • Opens doors to more opportunities for business lines of credit, funding and banking relationships without having to provide a personal guarantee.

This is a common question because there are people who reside on both sides of this argument and so, legally speaking, we like to call it a “gray area”.

Shelf Corporations themselves are just that, a corporation that is ageing – so there is nothing illegal about that.

What could possible make a Shelf Corporation illegal is how it was created and how it is used.

If you buy a Shelf Corporation with the intent of using it to secure business loans or lines of credit that you would have otherwise not been qualified for, this could be considered crossing the line and could be considered illegal.

More often than not, Shelf Corporations are purchased for this reason and many businesses get away with it, however, there is always a risk of being caught and if you are caught and end up in court, it will be up to the judge to decide whether they consider this fraudulent or not.

According to Experian, off-the-shelf companies were formerly used to streamline new business startups. “However, selling [shelf companies] as a way to get around credit guidelines is new, making them unethical and possibly illegal.”

Shelf Company vs. Shell Company

As mentioned above, Shelf Companies are created to age and build a credit history without actually conducting business.

A Shell Company is created to hold money or assets for an organization or business entity.

This is usually done to hide money from tax collectors, law enforcement, or the public knowledge and is illegal.

Shell Companies and Shelf Companies are both legal businesses however, if they are used to do illegal things like tax evasion or to create a false sense of credibility, then that can make them illegal.

Shell Companies are used for a variety or reasons including:

  • Hiding product development from competitors (not illegal)
  • Holding funds for possible business takeover or buyout (not illegal)
  • To hide money from reporters, stalkers, or others who may use it against you (not illegal) – this is often done by public figures or those who are often in the media or gain a lot of public attention or scrutiny.
  • International businesses use Shell Companies for tax purposes (not illegal)
  • To evade taxes, hide money, or do other shady business deals (illegal)

Buying a Shelf Company

If you have a legitimate reason for purchasing a Shelf Company, there are certain things you will want to be aware of before pulling the plug on one.

Some sellers of Shelf Corporations are themselves selling fraudulent corporations that don’t actually provide the benefit they claim to.

There are also companies that sell Shelf Corporations that have done business in the past, you probably want to stay away from these.

These corporations may have past liabilities or lawsuits brought against them and you will now be liable because you now own the corporation.

You will want to make sure the Shell Corporation does not have any lingering liabilites or lawsuits and this can be done by looking at the history of the corporation.

You should always do your homework before purchasing an ages corporation.

There may be some legitimate reasons to buy a shelf corporation.

However, buying a company with aged tradelines in an attempt to manipulate the commercial credit reporting and scoring system isn’t legitimate.

The best way to grow your business and gain credibility is by just letting it naturally age on its own.

While this can be slow, it is 100% legitimate and doesn’t have the risks associated with a Shelf Corporation.

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  1. Experian "Don’t play the shelf & shell game with fraudsters" Page 1 . May 3, 2021

  2. "Employer ID Numbers" Page 1 . May 3, 2021