- November 2, 2020
- Posted by: Dennis
- Category: Business Growth
How Can Shelf Corporations Benefit Black Owned Businesses?
Before entering the realm of business, it’s recommended that you conduct research. You should identify your business type. Identify your services or products to be offered and your target markets. You also need to source funding. Register your business and have sufficient start up capital. Here is where it may get tricky. You may face obstacles when it comes to getting loans or investors on board with your business idea. The funding available to black Americans are already limited. Therefore, you need to be innovative when it comes to starting up your business venture. One way to do this is to purchase a shelf corporation.
What is a Shelf Corporation?
A shelf corporation, also known as an ‘aged corporation’ is a corporation that is formed, registered and then left to age or ‘put on a shelf’. The corporation then remains dormant. It does not have any actual business transactions or operations. Neither are there assets attached to the entity. These types of corporations are formed and shelved. These companies are for people seeking to avoid the complicated paperwork and red tape surrounding establishing a company. You can skip the process of establishing a line a of credit using a brand-new entity. Many credit or investment resources require a company to be at least two years in establishment to access services. A shelf company can satisfy this requirement.
Are Shelf Corporations Legal?
Shelf companies are generally considered legal. It all depends on who or what the business is used for. Some people abuse shelf corporations by using them for illegitimate means and therefore create a bad reputation for them. However, many large and successful (legitimate) companies use shelf companies to conduct their business. For many startups, shelf corporations are a go-to option for entering the business market.
Shelf corporations are formed in states such as Nevada, Delaware, Hawaii, Colorado, Texas and Montana. The reason for this is because these states have lower taxes and filing fees. They also have less regulations when forming a business, which means a shorter and easier process.
How much do Shelf Corporations Cost?
Shelf corporations are priced based on their age and the benefits they come with. Newer corporations with less time on the shelf can cost around $650 while older companies with established lines of credit are usually $10k and upwards.
How can Shelf Corporations benefit your business?
Shelf companies come with a list of positive attributes such as:
- They save you the time and expenses required to set up a brand-new corporation
- Gives you faster access to banking services and developing your line of credit
- Can grant you eligibility for grants and contracts which require ‘aged’ established businesses
- Aged corporations are more likely to attract investors
- Some may come with all the necessary paperwork, business registration numbers and IRS documents or open lines of credit already set up.
This means that instead of starting from scratch, a shelf corporation is like a shortcut to getting your business up and running. You can simply purchase a shelf corporation and immediately be able to conduct business operations. For many black business entrepreneurs this can open doors to financial services that would otherwise be inaccessible. They can skip the lengthy wait times in order to become eligible for access. For example, being able to qualify for business development loans and capital can happen quickly.
What are the downsides to shelf corporations?
As with most things in life, there are a few downsides when it comes to shelf corporations. These are some ‘cons’ that you should be aware of:
Beware of fraud – Some sellers who specialize in shelf companies may actually scam you out of your hard-earned money. They may sell you a corporation that has shady lines of credit or was previously used for illegal business or fraud.
How to avoid this: Do thorough research and analysis on the shelf corporation you intend to purchase. Ensure that all financial trails or lines of credit are clean.
Beware of ‘re-aging’ – In some cases, you may be purchasing a shelf company for its established status. However, it’s possible that the change of ownership or management can actually reverse this status. This means that new management essentially means a new company and therefore requires a certain amount of time to be eligible for business services at financial institutions.
How to avoid this – Again it comes down to research and a deep understanding of all legal clauses and ‘fine print’ associated with the shelf corporation.
Beware of shell companies – Shell companies are similar to shelf corporations/companies. They are ‘readymade’ businesses that can be purchased. These shell companies however are formed for illegal activities such as money laundering or tax evasion.
How to avoid this – Don’t purchase any business entity without ensuring that the sellers, firm or team are legitimate.
Is a shelf corporation right for you and your business?
Purchasing a shelf corporation requires a lot of research and proper analysis. Finding the right shelf corporation depends on your business needs and the type of business you want to pursue. Shelf corporations are for those who want to have a head start by having an already established company. If you want to base your business via a shelf corporation and have a shorter wait to build business credit and financial relationships, then explore the options available to you and your budget. If you aren’t sure about how to go about finding out about shelf corporations and how to purchase them, consult a professional agency that is well versed in such ventures.
Moore Financial Services has developed the Biz Credit Movement to help black entrepreneurs establish business the right way. We can help you go over the options available to you and provide a consultation on what is the most suitable fit for your and your business. Navigating the world of business does not have to be overwhelming. Our services are designed to assist you in all aspects of the business process and we ensure that you are well-informed and equipped to manage on your own.