Thinking about buying a business, but are confused when you encounter the term "shelf corporation"?

Actually, the term is quite a descriptive phrase for this type of corporation. Some companies own many of these firms for the sole purpose of others, like yourself, buying them right "off the shelf."

Shelf corporations are sometimes referred to as aged corporations. They were incorporated and are legally registered, but have not been actively functioning as a company. It was created and "put on the shelf" with the express aim to have it age.

The firm is then sold to an individual or group who desires to purchase an aged corporation rather than a new one.

Now you may wonder why anyone would even want to buy a shelf corporation, since it hasn't been functioning. But there are indeed advantages to such a purchase

Reasons for buying a shelf corporation

Consider for example, that buying a shelf corporation is actually a time-saving step. It takes less time to simply buy one that is already incorporated and licensed with the state than going through all the paperwork and hassle yourself.

Another important consideration is the opportunity to bid on contracts immediately after your purchase. In some states and municipalities a newly formed corporation is prohibited from even bidding on contracts until it has been in business for a certain length of time. A shelf corporation fulfills this requirement.

Quite frankly, some individuals buy a shelf corporation just to avoid the stigma of being "new." When you buy a firm that has a history - albeit one that hasn't been active - you create the appearance of "corporate longevity". This can boost both consumer and investor confidence.

Buying a pre-existing corporation - even a shelf corporation - can sometimes make it easier to gain access to not only investment capital, but also to corporate credit.

Buyer Beware

Any purchase possesses a downside and shelf corporations are no different. Some corporate experts say that these firms are really unnecessary due to the relative ease of present laws of incorporation. In fact, these individuals explain that you can incorporate in as little as several hours.

Some of the experts also doubt whether the purchase of a shelf corporation actually helps improve a firm's access to such important matters as business credit and greater access to capital. They contend that creditors and investors search a company's history as part of the process. Even though the shelf company you purchase has a history, it's quite literally on paper only. There's been no activity of any type, so it doesn't have a credit history of its own.

As you surf the internet, you'll no doubt run into companies that list and sell shelf corporations. They tout the advantage that you can not only own a corporation with a long history, but have complete control over the establishment of the corporation's board of directors and its shareholder profile.

If you're considering purchasing a shelf corporation, the best advice anyone can give you is to do your homework. Be diligent about checking into the background of the particular firm you intend to buy.

Check it out for any liabilities. Remember when you buy a company, you inherit it's liabilities. Not only that, be sure the entity that is selling you the corporation guarantees that the company is free from any liabilities.

Ensure that the shelf corporation has had no previous owners. This is only increases the chances that it has a troubled past lurking in the background.

Make sure that the firm you buy the shelf company from has a large selection to choose from. This helps to ensure that the entity is creating these firms with the intention to sell them. If the seller only has one or two, he may be selling them because of a less-than-stellar business history - including liabilities and/or a poor business credit history.

Finally, make sure the firm is reasonably priced. This means don't buy a shelf corporation from the first web site you land on. Check out many of sites and many shelf corporations. This purchase is far too important to leave to impulse buying.

Consider all your options before you buy a shelf corporation, including running a sole proprietorship and creating your own corporation. The purchase of a shelf corporation has far too many implications - legal, tax and otherwise - to take this decision lightly.