How To Form a Shelf Corporation

Until fairly recently, the creation of a corporation was a lengthy cumbersome process.  To combat this delay, shelf corporations were formed and aged, while being kept inactive, until an individual or existing business required quick reorganization into a new corporate identity.

Today, with incorporation taking as little as a few hours to complete, it is not uncommon for these aged shelf corporations to be created solely for the purpose of sale to buyers seeking a ready-made corporate entity to fold existing business enterprises into.  Today, it is this aged status and established credit history that give these entities real value, especially in an economic environment with depressed credit markets and increased scrutiny of credit histories by lending institutions.

An incorporator, otherwise called promoter or agent, will choose the least restrictive regulatory environment to form corporations they intend to shelf for later resale.  In addition, they will craft incorporation documents in a manner where they can be easily adapted to the largest segment of buyers.

The target market for these are individuals and businesses that are in need of established credit histories, to be used to secure financing for existing operations and cover for a non-existent or blemished credit history.   Other buyers need solid, lengthy credit histories to bid on projects or do business in industries with customers who require such a history.

To create the proper mix of credit worthiness and age, marketers form many such corporations and have each of these transact business with each other on paper.  These straw transactions create the history that rating agencies such as D&B use to create credit profiles.  Banks, in turn, rely on these profiles to grant credit.

With the relatively low effort incorporation requires, and the payoff from hungry buyers in the hundreds of thousands or more, there is increasing temptation to form these entities for legitimate profit or fraudulent scamming.  The risk to the buyer increases also.

If the potential creditor suspects that the shelf corporation is a cover for a greater risk they may require a personal guarantee anyway. In addition the credit history of the corporation may be re-aged by the rating bureaus In this case, the buyer has spent good money for a worthless asset.

Agents, who form and sell shelf corporations for profit, may face litigation from disgruntled customers.  Legal actions for fraud or misrepresentation against sellers are increasing in frequency.  With due diligence however, buyers can obtain legitimate aged shelf corporations meeting their needs.