What is an off-the-shelf company?
Alternatively called a ready-made company, an off-the-shelf company is a pre-made company formed and registered with Companies House but has never traded. It is much like a new car, ready to be sold and instantly used. But it’s not quite as simple as handing over a deed upon bank transfer, as a company comes with a lot of moving parts.
But what are the benefits of buying a shelf company? In this article, RealBusiness will outline what makes a ready-made company so appealing, how one is purchased, and the fine print surrounding the deed.
Table of Contents
Why buy a shelf company?
Why not simply create your own custom limited company instead of buying one from somebody? Typically, people who buy shelf companies have a plan or have advantages to take that going through company formation would hinder, such as:
- Time – Company formation takes time. People who want to execute their plan as soon as possible aren’t going to concern themselves with having a bespoke company. If there are details they dislike, they can usually change it at a later time.
- Age requirements – Some financial products or sectors require the limited company to be of a certain age, usually to reduce fraud risk. Since off-the-shelf companies can be “shelved” for any period of time, this counts as a bypass for many of these limitations. Companies created, held, and later sold are named “dormant companies”, a subcategory of a shelf company.
- Instant documentation – Buying a shelf company means it comes complete with a certificate of incorporation, company number and electronic filing access in a matter of hours, whereas normal formation would take days.
- Anonymity – There is a time gap, which can often be delayed, between gaining control and registering a new director’s details. It’s worthwhile pointing out, of course, that this is considered shady and may even violate anti-money laundering laws.
- Perceived credibility – An older company is seen as being more established to clients, lenders or suppliers – even if there’s no trading history to scrutinise. It sounds strange, but it works in practice – they see age and, conversely, increased credibility, but no past transactions, debts or disputes.
Shelf companies are typically purchased by:
- Entrepreneurs and startups – Individuals wanting to expedite business setup and immediately start trading.
- Business pursuing credibility – Companies that want to present an established presence, having an older company can help enhance trust.
- Entities requiring quick market entry – The process of buying a shelf company finalises within a couple of hours, allowing organisations to secure contracts or pounce on opportunities immediately.
How do you purchase an off-the-shelf company?
The following is a step-by-step guide to purchasing shelf companies, from browsing to finalising:
- Find a shelf company seller – A shelf company seller is are businesses that create, maintain and hold pre-registered companies to sell them later. The most common examples for UK companies include 1st Formations, Rapid Formations, and Companies Made Simple.
- Select and purchase – Ready-made companies range from brand new companies to vintage companies. Older ones tend to be more expensive, and prices range between £100 to £1,000+.
- Provide information – You will be asked to submit, after paying, your full name, residential address, nationality, DoB and proof of identity/address.
- Transfer of ownership – The company formation agent will remove the nominee director and appoint you as the new one, then they’ll transfer shares to you as the new shareholder – all on your behalf.
- Optional features – There are several changes you can request, such as a company name change, SIC code change, adding a new service address and registered office address, or requesting help with VAT or PAYE registration.
- Receive documentation – These include the certificate of incorporation, share certificate, memorandum & articles of association, board meeting minutes and Companies House filing confirmation.
- Start trading – Once the updates are processed by Companies House, you can open a business bank account and begin trading.
What comes with a shelf company?
A shelf company comes with various features, although not all sellers offer the full range:
- Pre-registered at Companies House – The several-day-long process of company formation is skipped entirely.
- Documentation – You are given a certificate of incorporation that includes company details, such as a registered office address and service address.
- No trading history – Having no history is more beneficial than having a bad history, as the presence of debts and other liabilities is a black mark.
- Single director appointed – These companies are set up with a nominee director, with the new director’s details to be added on purchase.
- Company name change service – Most dormant companies can have their company name changed right away.
- Electronic filing access and online admin portal – The Companies House account is handed over, allowing access to the online portal.
- Generic SIC code – Usually a placeholder SIC code that needs to be changed.
- Share structure – Most shelf companies formed come with one ordinary share issued to a nominee shareholder.
- Board meeting minutes applied – Typically, they come with templated minutes of a board meeting authorising the share transfer and appointment of new directors.
- Transfer shares – Share transfer documents are also included, often signed and dated to allow immediate change of ownership.
- Public register presence – The company already exists, and its details (including date of incorporation and current officers) are visible on the public register at Companies House.
What are the downsides to buying a shelf company?
Buying a shelf company isn’t for everyone. If the previous two sections haven’t convinced you, we’d recommend you form a new company via Companies House. But if you’re on the fence, consider the following downsides:
- Higher cost – Shelf companies are more expensive than new company formations. The value must outweigh both the age and the swift delivery of the shelf company purchase.
- Generic setup – They are generic companies in name, details and directors – all requiring updating.
- Potential for hidden liabilities – Vintage companies may carry overdue confirmation statements, or other requirements if it has not been properly maintained by the company formation agent.
- Compliance and verification – You can’t skip all the administrative work; you still must pass anti-money laundering checks, submit new information and apply for a business bank account.
- Possible reputational concerns – Whilst shelf companies aren’t malicious by default, new and ready-made, companies have a history of being used for fraud, which may raise some eyebrows with banks, suppliers or HMRC.
Who should handle your ready-made company?
When buying a shelf company, you have two routes. You either handle all updates and transfers yourself or you hire a registration agent. There are pros and cons to both:
- Speed and simplicity – Registration agents do all the administrative stuff for you, to your instruction. without them, you’d have to do director appointments, share transfers, SIC code updates, and more.
- Risk and accuracy – Documents are pre-prepared and always legally compliant. Registration agents do this for a living, meaning they have professional standards. If you DIY, there’s a higher chance of errors in share transfers and confirmation statements occurring that may lead to rejection or penalties.
- Access to extras – Registration agents are often bundled with a registered office address, service address, VAT registration number setup and access to online portals. This is convenient unless you can easily source and manage them independently.
- Hidden costs – You may be charged with additional fees for each addon, like changing the company name or adding shareholder information.
- ID verification – You will still have to provide ID for anti-money laundering checks before processing the sale, this step may make some uncomfortable.
Conclusion
Overall, a shelf company is mainly purchased due to its age and speedy company formation process. If these traits are not ideal or required, there’s little reason to go through the process. If you’re converting to or creating a limited company for the first time, it may be better to experience the transference in full.
FAQ – What is the difference between a shelf company and a shell company?
Shelf companies have been explored in-depth throughout this article, but the similarities between these two entities in simply in the name.
A shell company:
- Paper existence – Its existence in the practical world is limited, with no significant assets, operations or employees.
- Used – Shell companies are often used for mergers, holding assets and restructuring. That being said, they are also used for fraud, tax evasion and money laundering.
- Activity – It may or may not have trading activity.
- Range in age – A new shelf company has limited use and is often made dormant to build value.
- No trust – HMRC and financial regulators dislike and distrust shell companies due to their fraudulent track records.
FAQ – Why do law firms use shelf companies?
There are several reasons that law firms are typically the ones using off-the-shelf companies:
- Speed – Law firms may need to set up a client’s business structure quickly.
- Pre-approved structure – Shelf companies come with standardised documentation that makes it easy to adapt for trusts, holding companies and SPVs.
- Confidential – Shelf companies allow ownership transfers without revealing client identity.
- Historic incorporation date – Older companies can bid on contracts and settle disputes more easily.
- Asset protection – Shelf companies are used in tax planning and asset ringfencing strategies, especially in group structures or succession planning.
- Client requests – Some clients specifically request a shelf company for speed, privacy and strategy.
The post What is an off-the-shelf company? appeared first on Real Business.
Alternatively called a ready-made company, an off-the-shelf company is a pre-made company formed and registered with Companies House but has never traded. It is much like a new car, ready to be sold and instantly used. But it’s not quite as simple as handing over a deed upon bank transfer, as a company comes with…