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Is A Shelf Corporation A Good Business Move?

Dec 28, 2007
You have likely heard about shelf corporations being the way to go if you want to hurry up the process for obtaining corporate credit. In many cases this is going to work well for you because it shows the lender that you have been established instead of just starting out. Shelf corporations are legal but they aren't always the answer to your corporate credit situation. Make sure you are aware of the pros and cons of shelf corporations before you move forward.

In the eyes of the lender, it reduces the risk involved should they decide to issue you credit. Since at least 50% of all new businesses fail in the first year, the fact that you are a couple of years old significantly reduces the liability in their eyes. This could mean the difference between you getting the corporate credit you need or it being denied. It can also affect your credit limit and the amount of interest that you will pay on it.

Consumers also find you to be more appealing when you have some longevity behind you. Consumers are becoming more interested in finding out how long a business has been in place before they make a purchase from it. If they see you have just started out they may buy what they want from someone else. However, if the purchase of a shelf corporation makes it appear older than they will assume your business has been doing well.

Depending on what type of business you operate, you may be attempting to secure lucrative deals with other businesses. They are going to be more willing to engage in a large order with you or even a long term contract if they think you are going to be around for a while. The amount of time you have been in business may directly affect their decision.

How honest is it to invest in a shelf corporation? Aren't you misleading lenders, consumers, and other businesses when you use this to promote your new business? There are plenty of ethical concerns with shelf corporations that individuals struggle with. While they are legal, many people aren't sure that they are ethical and they want no part of the process. You will also find those that say a shelf corporation is just another strategy for the benefit of your business.

There are plenty of factors you need to consider if you heading down the road towards a shelf corporation. Make sure it has a clean record with consumers as you don't want to be connected with complaints that have been filed against a business name. If it is a legitimate shelf corporation that has never been used this shouldn't be an issue, but make sure you look at it as well.

Take a good look at the prices of shelf corporations. Don't bother with it if you are going to have to invest capital that you have set aside for other purposes including advertising. Some people are under the understanding that a shelf corporation offers significant tax shelters and benefits. This is not the case at all so don't think you can recoup that money when you file at the end of the year.

Only you can decide if a shelf corporation is going to be right for you or not. Make sure you take the time to consider both sides of the issue. You also need to think about the cost involved. A shelf corporation isn't always cheap but it can lead to more sales for your business. Your personal opinion about the process is going to influence your decision as well.
About the Author
Robert Bain writes about how to build corporate credit the smart way, and avoid the common small business financing disasters.
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