Shelf corp funding a fairytale

So what is a Shelf Corporation?



A Shelf Corporation is a shell company that was formed years ago and then only brought active recently. Newly formed companies are often scrutinized when applying for loans or lines of credit by banks, so a ‘shelf corporation’ is sold to get around this by being created and then left ‘on the shelf’ for years before it used for the purpose of holding assets. In other words, it gives the bank an illusion that a seasoned business is applying for the loan.

 

But there’s a catch!

 

While lenders generally favor businesses that have been in existence for a longer period of time, do not be fooled into thinking that purchasing a Shelf Corporation will give you immediate access to capital, especially without a personal guarantee. Here are the risks you take when you purchase a Shelf Corporation.

 

      1. 1. In MOST cases, Shelf Corporations for sale are companies that have never done business, or even filed an EIN. This makes it impossible to go through any type of underwriting where a lender requires income statements since the Shelf Corporation has never declared any income or filed a tax return.

 

    1. 2. In the event that a Shelf Corporation has done business. There could be liabilities or judgements that come up after you purchase it, and as the new owner you may inherit this liability.

 

The Common Scam

Part 1: The Offer

Shelf Corporations are typically sold with the false promises of ‘coming with company credit’. These amounts are usually staggering and can range from $200,000 to $5,000,000, depending on how much the agent wants up-front for you to take ownership. The majority of the time, this funding is marketed as NO-PG, or not tied to your Social Security Number.

Part 2: The Terms

The agent selling the Shelf Corporation will want an upfront fee, which is typically a fraction of how much ‘guaranteed NO-PG credit’ you will receive with the corp. Fee’s range from $10,000 to $200,000 depending on the amount of credit promised. The agent will want his up-front payment via check, money order, or wire, and will often refuse to meet in person or in front of some legal council of yours so you can overview the proposal

Step 3: The Bait and Switch

It’s a story as old as time. The charlatan sales-man makes false promises upon false promises, and then when he has your cash in hand, he disappears like a ghost. You find out that his cell phone was a google-voice number or a temporary number, his address doesn’t exist, and recall that you never received any identification from him. Your corporate docs come in the mail, but there is no relationship with any bank, since the company doesn’t have an EIN.

How to project yourself from being bamboozled!

  • Vendors are going to have an upfront fee right so they’re going to want to check or a money order or they’re going to want a wire or something up front non refundable
  • The vendor is likely not going to have any kind of a legitimate office location, and will be operating out of a P.O. Box or a Regus Suite
  • They’re not going to want to meet with you and your legal council in person. If you have $50,000 to spend on a shelf Corporation it’s worth $500 to fly across the country and see who you’re buying it from.
  • If it’s too good to be true, it likely is!

The Silver Lining:

What are Shelf Corporations good for?

Marketing. Many business owners purchase shelf corps (for $500/$1,500) for the ability to claim that there company has done business since year XXXX, you may find some of these examples in company slogans. In the world of sales and marketing, some business owners want to create a rich history for their business, so saying something like

“Serving the tech market since the 1970s”

Is advantageous for those that want to make this claim.

Unfortunately, that’s the best use case for a Shelf Corporation.

Watch our Video on Shelf Corps



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