Shelf Corporations - Secrets Revealed

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3. Business Credit • Business Credit is credit that is for a business, and is in the Business Name • With business credit the Business builds its own credit profile and credit score • With an established credit profile and score, the business will then qualify for credit

4. Business Credit • This credit is in the business name and based on the business’s ability to pay, not the business owners • Since the business qualifies for the credit, in most cases there is no personal credit check required from the business owner

5. Business Credit • The business can use its business credit profile and score to qualify for revolving credit cards like Staples, Lowes, Sam’s Club, Costco, BP, Wal-Mart, and many more • The business can also qualify for Visa, AMEX, and MasterCard

6. Business Credit • The business credit profile will also help the business qualify for secure and unsecure business credit lines • The business can also qualify for some funding, loans, and some with no personal guarantee required from the business owner

7. Business Credit Benefits • A credit profile can be built for a business that is completely separate from the business owner’s personal credit profile • This gives business owners DOUBLE the borrowing power as they have both Personal and Business credit profiles built

8. Business Credit Benefits • Business credit assess a business’s ability to pay, not the business owners • Since the business qualifies for the credit, in some cases there is no personal credit check required from the business owner

9. Business Credit Benefits • Business credit scores are based only on whether the business pays its bills on time • A business owner can obtain credit much faster using their business credit profile versus their personal credit profile.

10. Building Business Credit • A business credit report can be started much the same as a consumer report commonly is, with small credit cards • The business can be approved for small credit cards to help them build an initial credit profile • These types of initial cards in the business world are commonly referred to as “vendor credit”

11. Vendor Accounts • A vendor line of credit is when a company (vendor) extends a line of credit to your business on "Net 15, 30, 60 or 90" day terms. • This means that you can purchase their products or services up to a maximum dollar amount and you have 15, 30, 60 or 90 days to pay the bill in full. • So if you're set-up on Net 30 terms and were to purchase $300 worth of goods today, then that $300 is due within the next 30 days.

12. Vendor Accounts • You can get products and services for your business needs and defer the payment on those for 30 days, thereby easing cash flow • And some vendors will approve your company for Net 30 payment terms upon verification of as little as an EIN number and a 411 listing

13. Vendor Accounts • Always apply first without using your SSN. • Some vendors will request it and some will even tell you on the phone they need to have it, but submit first without it. • When your first Net 30 account reports your "tradeline" to Dun & Bradstreet, the DUNS system will automatically activate your file if it isn't already. This is also true for Experian and Equifax.

14. Vendor Accounts • You need to have a total of at least five (5) Net 30 day pay accounts reporting. • Some vendors require an initial prepaid order before they can approve your business for terms. • Your vendors do not necessarily have to serve 100% of your business needs.

15. Vendor Accounts • Pay your Net 30 vendor accounts in-full and on-time • You must be patient and allow time for the vendors' reporting cycles to get into the reporting systems • It typically takes 3 cycles of "Net" accounts reporting to build credit scores

16. Shelf Corporations • A shelf corporation is a paper or shell corporation that is administratively formed and then "put on a shelf" for several years to age • The term "shelf" or "aged" only refers to the fact that the company has already been filed and is sitting "on a shelf" waiting to be purchased.

17. Shelf Corporations • A Shelf Corporation is a company that was created years ago for the sole purpose of being sold in the future simply for the value of its age • A person forms a company and does nothing with the corporation other than file the annual reports and cover the annual fees • Once the corporation is a few years old it has a sort of value for the right person

18. Origin • Historically shelf corporations were considered a legitimate way to streamline a startup • They were especially useful prior to the introduction of electronic registration when setting up new corporations used to take months to do • Selling them as vehicles to get around credit guidelines is fairly new

19. Shelf Corporations AKAs • Also called • aged corporations • seasoned shelf corporations • off the shelf company • Shelf corps • NOT the same as shell corporations • Shell corporations are completely different entities, both in scope and in formation • usually have no significant assets or operational structure

20. Shelf Corporations • A shelf corporation doesn't engage in any real business • Most shelf corporations have been totally inactive • They have never had income, assets or bank accounts, or had operations or activity of any kind

21. Shelf Corporations • During the aging period some efforts may be undertaken to establish a credit history, file basic tax returns, open a business bank account, and other simple actions to demonstrate some activity  • These types of shelf corporations are more valuable and are sold for more money

22. Shelf Corporation Purposes and Benefits • Shelf corporations are legal and do have legitimate purposes • They have been used by someone who may not otherwise qualify for a bank loan, line of credit, or government contract because they or their existing company do not have the required credit scores or a two to five year established business history.

23. Shelf Corporation Purposes and Benefits • A long-established company might qualify for more credit and funding • A company that has been open for 10 years will look more credible than one just opened this year • This might help to secure more credit and funding as the majority of businesses fail within 4 years, and only a small percent make it to 10 years or more

24. Shelf CorporationPurposes and Benefits • May be more attractive to potential investors and investment capital • May or may not have faster and easier access to borrowing • Some trade accounts will only approve companies who have been opened for 1-3 years or more

25. Shelf Corporation Purposes and Benefits • Buying a shelf corporation can make it easier to qualify for a loan, especially if you apply for less than $150,000 • Most banks do not perform extensive investigations for loan amounts less than 150k • Many banks still see shelf corporations as unethical as many use them to rack up credit and never pay the bills

26. Shelf Corporation Purposes and Benefits • Purchase a turn-key business • The company can then be sold to a person or group of persons who wish to start a company without going through all the procedures of creating a new one • By purchasing a shelf corporation, an entrepreneur now instantly owns an established company that has been "in business" for several years without debts or liabilities. 

27. Shelf Corporation Purposes and Benefits • Have an instant history for a company • Improve company image • Faster to pursue business endeavors because the company is already formed and ready for immediate delivery • Faster to obtain business licenses

28. Shelf Corporation Purposes and Benefits • Faster ability to bid on contracts • Saves time by foregoing the time and expense of forming a brand new corporation • Corporate filing longevity

29. Shelf Corporation Purposes and Benefits • A company is “founded” when they initially setup their corporation • Many potential business resources are hesitant to engage brand new or up-start corporations

30. Shelf Corporation Purposes and Benefits • The age of your company can give greater credibility to customers and lenders than a business that was recently established • Say you were an accountant for 10 years, but just opened your business • By buying an aged corporation that has been open 10 years, you can then advertise that you have been in business for 10 years, and your corporate records also support that

31. Shelf Corporation Purposes and Benefits • They are frequently used for holding personal or business assets • To show corporate longevity in order to attract consumers or investors • To gain access to corporate credit

32. Shelf Corporation Purposes and Benefits • To gain the opportunity to bid on contracts • Some jurisdictions require that a company be in business for a certain length of time to have this ability

33. Shelf Corporations Often people purchase such companies in Nevada, Wyoming or California as well as Delaware due to regulatory considerations

34. What is Included with Shelf Corps. • Articles of Incorporation • “Action of Sole Incorporator” document which transfers the company to you • Minutes of meetings (blank sample forms) • A corporate kit (record book) • Stock certificates (blank, un-issued shares)

35. What is Included with Shelf Corps. • A corporate seal • Corporate Bylaws (unsigned forms) • Registered agent service • Federal Tax ID Number

36. Negatives of Shelf Corporations • Shelf corporations are not looked upon favorably by regulators, lenders, or the business reporting agencies • Many say they are unethical, borderline illegal, and some call them a fraud

37. Negatives of Shelf Corporations • From Dun & Bradstreet… • “It is unclear whether it is legal to use shelf corporations to access credit. It is clear, however, that this is a deceitful, unethical maneuver that serious entrepreneurs should avoid.”

38. Negatives of Shelf Corporations If the credit bureaus learn about the company being under new management, they will list it on their reports, effectively "re-aging" the company

39. Negatives of Shelf Corporations • "Shell and shelf companies…can be created domestically or in a foreign country. Shell and shelf companies are often formed by individuals and businesses to conduct legitimate transactions. • However, they can be and have been used as vehicles for common financial crime schemes such as money laundering, fraudulent loans and fraudulent purchasing. • By virtue of the ease of formation and the absence of ownership disclosure requirements, shell and shelf companies are an attractive vehicle for those seeking to conduct illicit activity." • FDIC Special Alert, April 24, 2009

40. Negatives of Shelf Corporations • Many lenders now look at the bank account start date as the corporation start date • Most shelf corporations don’t come with established bank accounts • Some shelf corporations have actual credit problems making it harder to get funding, not easier

41. Negatives of Shelf Corporations • Most lenders know what to look for to see if the corporation is a shelf corporation • Things like your business Bank Rating could tip them off • Public records also show the change in ownership which raises red flags

42. Negatives of Shelf Corporations • They are expensive • Some companies might charge $500-6k • Some companies charge $20k or more • Cost depends on how long company has been opened

43. Negatives of Shelf Corporations • If you purchase the corporation, you are now the owner and responsible for anything bad that may have happened with that company since the day it was incorporated • This includes back taxes, financial audits, lawsuits, and judgments

44. Negatives of Shelf Corporations • They really aren’t needed in business credit building • Most vendors WILL approve new businesses for credit, even if they just opened • The key is to know which vendors can help a brand new business, and which ones can’t

45. Summary • Shelf corporations are NOT necessary to build business credit • Using a shelf corporation is not the best way to build business credit • Due to their expense and potential issues, they can actually hurt you more than they can help

46. Summary • The best way to build business credit is to work with vendors who approve new businesses, as many do • The best way to get funding is to use collateral, or have your business generating cash flow • Other ways to get funding are to use good credit partners to obtain unsecure financing

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