General Business and Finance Blog

ght (c) 2009 Marco Carbajo

There has been a growing demand in shelf corporations from many of the investors,small business owners and entrepreneurs that I have the opportunity to speak with on an ongoing basis who are looking for coaching on how to start business credit using a shelf corporation.

By sharing some insight with you on shelf corporations and what are the key business credit 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” (or “Aged Company” when referring to an LLC, for example) is a corporation that is already formed, but not in use, and ready for “purchase” by a new owner. There are many reasons that people purchase shelf corporations, and there are certain things to look out for when considering one of these “ready-made” corporations.

Now one of the questions I’m sure you’re thinking is “Why should I buy a Shelf Corporation?”

Shelf corporations allow you to engage into business, credit, or real estate agreements as an established company without having to go through the long waiting period of establishing a brand new corporation.

Most potential creditors or business resources are less likely to extend credit or lend to new or up-start corporations. By approaching them as an established corporation or company, the more likely your business has the opportunity to have access to credit lines, banking relationships, leases, and so on.

For example, during the initial stages of building business credit there are some vendors that will only extend credit to companies that are at least two years in business. In some cases they also require a personal guarantee if the business is less than a year old. By purchasing a shelf corporation that’s three or even ten years old can drastically increase the number of credit opportunities available to you.

Now don’t worry if your existing corporation is less than two years old because you’ll still be able to obtain business credit, but the amount of banks that you can apply at will be limited. If you’re planning on starting a corporation or setting up another corporation then this may be an option to entertain.

Shelf corporations can also offer a large increase in borrowing power as well as enhanced credibility for your business when talking to customers and lenders.

Remember the age of the owners does not necessarily correspond with the age of the company.

When the H.J. Heinz Company advertises that it was established in 1869, it doesn’t mean that all of the shareholders are well over 100 years old. It simply means that the company was filed in that year. You can take advantage of similar credibility benefits when advertising to customers.

The age of your company can give greater credibility to customers and lenders than a business that was recently established. So, purchasing companies with established credit and existing credit lines can give the business a big financial boost.

Here are the Top 5 Advantages of a Shelf Corporation

1. Saving time and expense of forming a brand new corporation

2. Immediate access to contract and government contract bidding. Most states require that your company be in business for a specified minimum length of time.

3. Instant credibility and an appearance of corporate history.

4. More attractive to potential investors and investment capital.

5. Faster and easier access to banking relationships and lines of credit.

As far as purchasing a shelf corporation for the purpose of obtaining a bank loan or line of credit, given the current economic conditions, banks are requiring seeing much more than simply the age of your company. There are bank ratings, credit history, NSF history, and other factors to consider especially if you request more than a $50k line of credit. So if your interest is in applying for bank financing keep in mind shelf corporations have no business history, tax returns, financials and existing revenue.

Another word of caution that you need to consider is there are many businesses that sell shelf corporations that have done business in the past, DO NOT buy these! If a shelf corporation has done business in the past and you purchase it you also assume all past liabilities of that company. So if the company has had any lawsuits brought against the corporation from the past you are now liable because you now own the corporation.

It’s critically important that the shelf corporation you are considering not have any inherent or lingering liabilities. For the most part, this can be assured by looking into the history of the corporation and ensuring that the extent of its business activities was limited or nonexistent except for the application of an Employer Identification Number and maybe the formation of a bank account.

Shelf corporations can be a great option to start business credit if the proper due diligence is taken and there are many aged shelf Nevada corporations, Delaware corporations, Wyoming corporations, offshore corporations and Canadian Corporations that are available but be sure you do your homework.

In today’s diverse and unpredictable economy, the need for a sustained profit plan and long term growth strategy has become essential for both individuals and corporations. Merchant banking principally involves providing financial services and advice for individuals and corporations. Merchant banking operations consists of providing clients with a variety of financing options to sustain long term growth.

Merchant banks tend to have operations in a variety of countries throughout the world allowing them to offer an extensive network distribution to help their clients explore opportunities with alternative finance options.

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The most common private equity investment strategies include venture capital, leveraged buyouts, distressed investments, growth capital, and mezzanine capital. Leveraged buyout generally means that they acquire majority control over existing or mature corporations. Growth capital and venture gains means they invest in newer or rising corporations without acquiring majority control.

Today, merchant banks are involved in a number of tasks such as credit syndication, portfolio management, mergers and acquisitions counseling, and acceptance of credit, etc. Their investments include private equity, structured equity, and bridge debt. They generally invest in private or public companies to finance growth, acquisitions, and management/leveraged buyouts and recapitalizations. In some cases, they provide an invested company with short-term financing for a particular project, or provide short-term liquidity.

Merchant Banking operations can focus on a particular country or they can expand their operations in other countries. They can assist sustainable companies undergoing a financial restructuring requiring short-term liquidity. These banks provide their partners with financial analysis, capital structuring and strong industry relationships. They provide the corporate lending, leveraged finance, and investment banking and industry expertise. Merchant Banking operations provide all types of domestic and foreign banking transactions, corporate finance services, product knowledge, and management services.

Global merchant banking operations provide individual and corporate investors with the opportunity to participate globally for access to international investment opportunities, providing global companies access to a particular market, and opportunities for co-investment.

When searching to partner with a Merchant Banking Service Company in order to enhance your business operations, you should find a well established, full-service merchant financial services company. You want a large, credible firm that can demonstrate a good track record. Ask the merchant banks how long they have been in business and who some of their customers are, particularly from your market, so they can demonstrate their experience and understanding of your needs.

Merchant banking operations provide the support, knowledge, and resources to effectively assist clients and corporations with improving, expanding, and sustaining their business and business investments.