Shelf Corporations: The Pros and Cons

Consumers generally look for companies that have been in business long enough to develop a relationship with them. If you have a shelf corporation, they might feel confident enough to go ahead and make a purchase.

A. Since a dormant corporation is a chartered business, it can be sold to anyone who wishes to start their own business but has no desire to go through the process of starting one.

B. Another benefit of buying a dormant corporation is that small business owners who are looking to bid on projects but need several years on the market can use a dormant corporation with years in existence to their advantage. It’s like saying established since 1990, but really only since 2009. Shelving company was established in 1990, so it’s true.

C. Shelf Corporations are big business for professionals. In fact, many professionals maintain a career building and selling dormant corporations to buyers looking for a long history with no past.

D. For many dormant corporations it is the way to go if you want to speed up the process of obtaining corporate credit for your business. In many cases, this will work well for you because it shows the lender that you are an established entity rather than just another new business, which is considered high risk.

In the eyes of the lender, it reduces your risk should they decide to issue you credit. This could mean the difference between getting the corporate credit your business needs or being turned down. It can also affect your credit limit and the amount of interest you’ll pay on it.

The cons
A. As a buyer of a dormant corporation, you have to be a little smart if you’re buying the company to help establish a long business history. If the credit bureaus find out that a business is under “new management,” they can age the business back to the date of purchase, thus removing longevity. This is happening more often.

B. How honest is it to invest in a dormant corporation? Aren’t you fooling lenders, consumers, and other businesses when you use this to promote your new business? There are many ethical concerns with dormant corporations that some business owners struggle with. Although they are legal, many people are not sure that they are ethical and do not want to participate in the process.