What Is a Shelf Corporation?

Malcolm Tatum

Also known as an aged corporation or a shelf company, a shelf corporation is a business that is fully incorporated but is not currently active. The name for this type of business situation comes from the idiomatic expression of being on the shelf. That is, someone went to the trouble to create the business, set it up from a legal standpoint, but has never chosen to actually do anything with the business.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

There are several reasons why an entrepreneur may choose to create a shelf corporation. One has to do with the idea of creating the business in anticipation of an upcoming project that is not quite ready for launch. Rather than waiting until later, the entrepreneur goes through the legal processes of setting up the corporation and allows it to remain dormant until the time is right to launch the project. The benefit here is that it is possible to move quickly when that right time arrives, without the necessity of being bogged down in the red tape that sometimes slows the process of legally creating a business.

Another reason for creating a shelf corporation has to do with appearing more attractive to prospective investors. Even though the company has not actually been activated, the fact that the entrepreneur has taken the serious steps of creating the corporation sends the message that he or she is serious about the business venture. Investors who may be somewhat hesitant to be involved when there is no actual legal company structure in place may be more open to investing in something that has an established foundation but needs funding to move on to the next logical step of actually producing a good or service.

At times, the entrepreneur may create a shelf corporation for reasons other than eventually activating a business. With this application, the original owner of the company creates a business model, takes all the necessary measures to incorporate the business, and then sells the shelf corporation to someone who actually wants to make use of the business to begin producing products. The creator of the corporation receives compensation for his or her efforts in handling all the legal activity necessary to create the business, while the new owners have the benefit of not having to deal with those processes and can move on quickly to manufacturing and selling their products.

There is some difference of opinion on whether a shelf corporation is truly a good idea. Proponents see it as a productive way to prepare for future business activity now rather than waiting later and possibly losing opportunities created by the delay. Detractors sometimes cite that times have changed and incorporation laws and procedures in many nations today allow businesses to be incorporated in a fraction of the time required in the past. For this reason, the effort to create a shelf corporation in advance may not provide the benefits that the action once offered.

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