By definition, shelf corporations are companies or corporations that are created and left with no activity – literally put on the “shelf” to age – and then sold to a person or group of persons who want to start a company without going through all the usual procedures and processes. Typically, these companies are viewed by D&B® and other credit resources as having no need of credit and are shunned by lenders.
Is using a shelf corporation putting you on track for a personal and professional train-wreck?
In most cases, D&B® is quick to identify shelf corporations for exactly what they are — a “flash-in-the-pan” strategy to achieve credit and then dodge the responsibilities that accompany the debt. Their 175+ year history of credit management has proven time and again that these types of strategies will typically leave lenders and creditors holding the bag for the funds they have provided. It is for this reason that D&B® is quick to research companies they believe are shelf corporations, downgrade their credit potential, and pull the switch in the rail yard before the lenders get taken for a disastrous ride.
There are a vast array of specialized businesses who promote their services in the shelf corporation field. They create fictitious corporations, put them on the shelf to age, and then wait for a buyer to come along who has a need for the business. Fortunately for them, their client base is exploding due to credit coaching companies who suggest their clients take this route to achieve credit success.
Oftentimes, these companies work hand-in-hand to promote and sell each other’s services, but neither will honestly advise their clients of the risk they are assuming. And while there are a number of reasons for purchasing a shelf corporation, legitimate or otherwise, all of them come under intense scrutiny. Some purchase to avoid the mass of complicated paperwork, while others purchase to bid on projects that require a business be a specific age. Many people purchase a shelf corporation for the purpose of attracting consumers or investors or to obtain corporate credit. But whatever the reason, it is generally considered an attempt to misrepresent the actions and operations of the business and is, for the most part, doomed to failure.
It is questionable whether a shelf corporation will actually improve access to capital, since creditors and investors usually research a company’s history as part of their due diligence process. If D&B® or any of the other credit bureaus learn about the company being “under new management”, they will list it on their reports, effectively “re-aging” the company to the date of the new management, which defeats the whole purpose of purchasing the aged company in the first place. In order to keep the creditors and credit bureaus from figuring out the truth, a certain amount of re-invention or misrepresentation must occur, and here is where the trouble starts.