What is a Shelf Company? Ultimate Guide to Shelf-Companies

Entrepreneurs looking for an easier way to start up a business without going through the stress of registration and all other processes related to registration.

The registration process is sometimes stressful for entrepreneurs and to avoid going through all that stress, they prefer going for ready-made companies.

Shelf companies are companies that are not trading or dormant and have been kept on the shelf by agents to sell out to entrepreneurs looking for a ready-made company to buy. Their shelf companies are already registered and all other processes related to Registration have been done already. As an entrepreneur, you just need to buy the company and change its name and directors if possible, then customise the company to your desire.

What are Shelf Companies?

Shelf companies are old or aged, dormant or non-trading companies that are sold out to entrepreneurs looking to start up a company without the stress of company and tax registration processes.

They are called shelf companies because they are out on the shelf by investors and listed for sale.

Once a company is out on a shelf, it has been listed for sale and any interested buyer will contact the agent for proper documentation and transfer of ownership, directorship or shares to the present company executives.

Shelf companies are mostly non-trading companies that are created to sell out to entrepreneurs.

Agents go through the registration processes and get these companies ready for anyone interested in buying it. The company's information is mostly in the name of the agent, as it is created by the agent and the shareholders are called placeholders in this case.

They are called placeholders because they are just taking the place of the future shareholders and when the company transfer of ownership is done, they can transfer the shares or possibly the shareholder title to the new shareholders that is agreed upon by the new company owner.

Since some entrepreneurs prefer ready-made companies with no stress of registration, they go for shelf companies instead. They buy shelf companies and go through the necessary processes to acquire ownership of the company.

In the era where company formation with Companies House was all done with paperwork, many investors preferred shelf companies because of the stress and hassle of paperwork.

Also, mistakes were made which made company registration for some entrepreneurs very delayed and they wanted to opt for a better choice. Papers can get missing also and this will delay the registration process. Also, the paperwork is very complicated.

But now that company registration can be done online, entrepreneurs find it less stressful although some still prefer shelf companies since they are old companies.

Shelf companies have been and are still an option for many entrepreneurs who want companies that are already in existence and also companies with already done registration processes.

Formation of Shelf Companies

Shelf companies are also formed like other companies. These companies are mostly formed by company formation agents who regulate all the activities of the company.

The agents go through all the registration processes and then appoint shareholders in the company. These shareholders are called placeholders since no trading has started in the company that their shares.

Once shareholders have been appointed, it assumes the structure of normal trading but without any form of trading.

Properties of Shelf Company Formation

Here are the properties of shelf company formation.

1. Company Name

The company name chosen by the agent should be generic. It should not show any form of industry company or location. The name must be random and not a name specified to a particular person, product or location.

The name must be generic to ensure any entrepreneur can buy the company for any form of business or trade without having to worry about the specifics of the company. They can buy it for any location, any business type and any consumer type.

Some company names usually have an insight into what the company is meant for to attract the right customers. But in shelf companies, these names are not used. Although some agents might choose to use names specific to a particular location, people or products, this company can only be bought by someone intending to use the company for the same purpose.

Some shelf company names can be changed while others cannot be changed so using a simple and universal name is very important in naming shelf companies.

2. Directors and Shareholders

The directors of a shelf company have their name on the company's article of association and after transfer of ownership, the names of these directors are replaced by the names of the new directors.

If the entrepreneur chooses to be the only director of the company, then only the entrepreneur's name will be replaced.

The directors and shareholders are employed by the agent to occupy the position of shareholders and directors at the non-trading company.

In the case of a dormant company, the directors may be the directors of the corner company or new directors employed by the agent.

The director's address can sometimes not be included in the article of association and all information will be the agent's company address. The shareholders of shelf companies are also called placeholders since they take the place of the actual shareholders.

There are registered shareholders of the company and after the purchase of the company, the names of these placeholders are removed from the company's registers and the names of the new shareholders are put in there.

A placeholder can decide to buy shares from the new company after documentation and transfer of ownership. Since there is no trading at the moment in the company, no dividends are paid to these shareholders of the company.

3. Registered Office Address

The registered office address of a shelf company since it has not been fully into trade, will be the address of the agent.

Some company formation agents also sell off-the-shelf companies and they register them with the official address of their company. After the transfer of ownership then the company's official address can be changed to the new one in the article of association.

The SAIL address is also the address of the agent and all necessary mails before transfer of ownership are sent to the agent's address.

Since no trading has taken place in the company, they can only register the address for inspection by Companies House or other relevant authorities.

4. SIC Code

The SIC code of shelf companies implies the type of shelf company and also the industry of the shelf company.

Shelf companies normally use 74990 which is the SIC code for non-trading companies. These companies are mainly created to be sold out as shelf companies.

• Shelf companies can also have the 82990 and 99999
• 82990 is for business companies that support service activities.
• 99999 is for dormant companies that are up for sale on the shelf.

All these codes signify different types of shelf companies and their industry.

5. Shares

Shelf companies are forked with simple shares for as low as £1 for shareholders. Due to the inactivity of the company, the shares are simple and very low.

Shareholders can purchase as many shares as they desire and continue to be shareholders as long as the company remains under the agent that formed the company.

you can also read more about limited company shares and shareholders here

6. Article of Association

The article of association will include the directors' names, the shareholders' names and all other important information about the company.

The article of association should also include the role of each member of the company including the agent responsible for the formation of the company.

The article of association should also include the intent of the company, either as a non-trading company, or a dormant company.

Once there is the transfer of ownership, all other new changes must be implemented in the article of association immediately.

The director's names and information have to be replaced with the new company directors. The company's address and name if possible will also be changed in the article of association.

7. Operation

After registration, the company's operation will be carried out by the agent's company. All necessary activities related to registration will be carried out by the agent.

Until the company is bought off by an entrepreneur or someone intending to start up a business, then all the activities and operations of the company will be managed by the agent and all mails will be received by the agent.

All payments will also be made by the agent as long as the company is still under their care, once the transfer of ownership is complete, then the agent can give the entrepreneur access to all the company's records so the entrepreneur will start payment and company management.

The following are what the agents are to do after registration of a shelf company.

• Sending a notification to HMRC of the status of the company as dormant
• Filing annual confirmation statements as long as the company is still under their control and management.
• Filing annual company reports to Companies House and HMRC.

Maintenance and management of the company will all be done by the agent before the purchase of the company by an entrepreneur.

How Do Shell Companies Work?

The agents register the company with a name and go through every necessary process during company formation. They set up their company at HMRC and then proceeded to sell it out.

They advertise the shelf company on sale on their website on a page. This shelf company that has been pre-registered will have all its requirements and features including the name listed on the sales page.

The information added to the shelf company sales is the company name, the date of registration and incorporation and the price. The older a company, the higher the purchase price.

Older companies are sometimes called "vintage companies" because they are expensive to purchase.

Because some entrepreneurs prefer companies with older incorporation dates so their company will not appear new to investors and clients, they prefer to go for older companies which are even more expensive than newer shelf companies.

Shell companies work by marketing themselves to potential buyers listing their prices and then waiting for the request to purchase. Once the purchase is made, then proper documentation can begin.

After purchase, the following will be needed from the buyer

1. Company Name

New company name (this will only be applicable if the agent confirms it is possible for a change of name, some shelf companies do not have a change of name even after transfer of ownership).

2. Registered Office Address

This is the address you want the public to see as your address. You can use your home address as your address or you can use a professional service address as your registered office address. It is how the address investors or clients can reach out to the company.

3. Director Information

The information of the director(s) is included in the article of association after purchase. The name, nationality, date of birth, occupation, residential address and service address of the director will be needed.

A director's residential address is private and can only be accessed by top authorities. The service address can also be the director's house, it is the address to which all mails relating to the company will be sent.

The director can also make use of the company's official address as their service address if they do not have any other address to include and do not want to disclose their residential address to the public.

Other agencies also offer professional service addresses to directors in case they do not want to use the company's official address. This agency will receive all mails and send them to the residential address or receiving address of the director.

4. Appoint New Directors

After the transfer of ownership, the directors resign and new directors are appointed in the new company. All information about the old directors will be removed from the company's records and the information about the new directors will be in every company record both private and public.

After the transfer of directorship, the old directors did not have any right to the company any longer and gave no access to it as well.

5. Transfer of Shares

Shares are transferred to former shareholders also known as placeholders to the new shareholders. Placeholders can choose to buy shares from the new company and become shareholders.

After the transfer of shares, all information about the placeholders is removed and replaced with information about the new shareholders.

How To Buy a Shelf Company

There are three processes involved in the buying of shelf companies, they include choosing a shelf company to buy, investigation, documentation and transfer of ownership.

1. Selection

This involves choosing a particular shelf company that suits your preference and going forward to check it out. Sometimes you might end up selecting a lot of shelf companies before you see one that best fits.

It is important to take time when selecting the shelf company we want to buy to ensure we make the right choice.

2. Investing and Gathering Information

After making a choice or different choices, you go ahead to make enquiries about the company in question. You enquire about the history of the company, legal placing, financial health and background as well as the history of the agent you're buying the shelf company from

Always choose a company formation agent with good ratings, feedback and history. It is always advisable to go for the best to avoid any complications when purchasing it transferring ownership of the shelf company.

3. Documentation and Transfer of Ownership

This is the final step in purchasing a shelf company. It involves going through all the paperwork processes which include transfer or change of company name (if possible), change of company's registered and SAIL address, and change of company's directors and secretaries.

Shares are also transferred from placeholders to the new shareholders. After the transfer of ownership and shares, the company now rightfully belongs to the entrepreneur and not the company formation agent.

Pros of Shelf Companies

Here are the advantages of buying a shelf company over a new company.

1. Time-Saving

The main reason why entrepreneurs choose shelf companies over new companies is because of the time it saves them from registration and doing all other related processes. They are always ready for immediate use once the payment has been made.

Entrepreneurs who want to begin business activities with immediate effect prefer to go for shelf companies since they have everything ready and just need a transfer of ownership.

2. Credibility

Older companies mostly have stability and preference with clients and investors. Most investors would love to invest in older companies rather than new Companies and thus, entrepreneurs who choose shelf companies have an advantage.

Shelf companies have information and a track of their existence available and prove to investors that they can be trusted. Older companies win the trust of investors more than new companies.

3. Access to Funding

Older companies have more access to funding and contracts than newer companies. There is much trust in older companies.

As an entrepreneur, getting access to funding and contracts is a great way of increasing business.

Cons of Shelf Companies

Here are the disadvantages of buying a shelf company over a new company.

1. Unavailable or Limited Customization

Shelf companies can be customised but with limits. Some shelf companies already have pre-registered business activities and customising it to your taste as an entrepreneur sometimes might be difficult or limited.

Also, your brand identity might sometimes not fit perfectly into that if the shelf company and customisation to fit your brand might be difficult. Those shelf companies whose names cannot be changed are a problem for entrepreneurs who already have a brand name.

2. Hidden Previous Issues

Even after investigation, there might still be some hidden issues with the company and after the company has been revived the issues will surface. Most issues have underlying financial issues and after purchasing the company, the debt becomes that of your company.

So it is important to do research and investigate properly before proceeding to buy an inactive, non-trading or even a dormant company.

The dormant company might have an issue with Companies House or even HMRC before their inactivity and once revived, the authorities will proceed with the issues.

Activities Related to Shelf Companies

The following activities are related to our purchase of shelf companies.

1. Rebranding and Customisation

Rebranding is doing little touches to the shelf company to ensure they fit into your brand and business. It might involve a change in the company name, company official image or logo, company brand colours or other necessary information about the company that might speak more about your brand.

Branding and Customisation are very important as they speak more of your brand, what they do and how they operate.

2. Government Policies

Every country has different government policies governing businesses, make sure to always know the laws of the country and how well they favour your purchase of a shelf company. Knowing the laws will be important to prevent issues that may arise in the future as a result of disobeying a law guiding a business entity.

3. Financial Health and Taxes

It is important to understand and monitor the financial health of a shelf company before proceeding to buy it. This is to avoid buying a shelf company already in debt.

Some companies might be owing taxes and when it is sold to you, it becomes your responsibility to clear out this debt if not cleared the debt and charges will accumulate and become a large amount of money over time.

4. Change of Company's Information

After the transfer of ownership, all information about the company is to be changed to that of the buyer. This information includes the company's name(if application), directors, shareholders, secretaries, office address and SAIL address.

Form Your Company with Incorpuk Today

At Incorpuk, we will help you through the company formation process and file your confirmation statements to help your business stay compliant. Whether you're a UK resident or a non-UK resident, our team is ready to provide guidance and help you establish your company in the UK. Contact us here today.

Conclusion

Shelf companies offer entrepreneurs a shortcut to having companies without going through the stress of registration. Entrepreneurs must always ensure to find a reputable company formation agent, look through their website for available shelf companies for sale and make their choices.

Entrepreneurs should always do thorough research on the shelf company before purchase to avoid buying shelf companies with underlying financial issues it issues with company authorities. After purchase, a transfer of ownership should be made

Shelf companies are preferable to those who want old and stable companies to run their businesses to give investors a good impression of the age of the company.

Shelf companies also have their disadvantage which is limited Customisation. Some shelf company names cannot be changed even after the purchase by an entrepreneur and because of this customisation becomes difficult and limited to entrepreneurs. If you have any questions on shelf company, don’t hesitate to contact us here, and we’ll do everything we can to help.