I am writing about this because I need to clear up a few things. I have been in this business for years and I like to be honest and straight forward about various tactics and processes being used in this industry and I want to address the aspect of Shelf Corporations being sold with Tax Returns.
So why do some people want Shelf Corporations with Tax Returns?
The quick answer to this is, “to get loans”; but let me explain a bit.
One of the biggest things that people seem to over look when building business credit, is that you need to look like a real business. Yes DnB takes stated income and yes, there are banks that give you loans without verifying income but the more you can provide with respect to verification, the more you can expect to get. There are some lines of credit which you can acquire(and I cover this is the Business Credit Bible) with stated income once your corporation fits certain requirements; and there are some lines of credit and loans which require financials and bank statements; and there are even more and larger loans and lines of credit which require Tax Returns. The additional requirements of Tax Returns and Financial helps to reduce the risk of the bank and they in turn offer you larger limits on your loans and business lines of credit.
So can I acquire a Shelf Corporation with Favorable Tax Returns?
This is a tricky question but in short the answer is YES, but you need to understand what you are getting into. The truth is, you can get a corporation with tax returns filed and you will be able to get loans using these tax returns, but the question is if they are legitimate. Let’s look at the two most common options in buying a Shelf Corporation with Tax Returns.
- Buying a Shelf Corporation or Aged Corporation with taxes filed already. There are a number of companies that have these corporations for sale but they are usually very expensive. I did a quick search and found one company, Silver State Legal, who has shelf corporations with tax returned filed. I saw one 17 year old corporation for sale for $20,000 with tax returns filed. So what’s the deal? I personally do not know what the deal is, but asking simple questions that make no sense should give you an idea if you should invest in this or not. Most banks that need tax returns for the larger loans also want financials and bank statements. They usually want to see revenue of $1,000,000 or more and many want to see $5,000,000 or more. If this company was making that kind of money for two years in a row, will it be worth it to them to sell it for $20,000? The only way it is worth it to them is if they did not make that kind of money, filed the taxes for that level of income anyway and never paid the taxes. In that sense you will now owe the taxes after you buy the corporation. I know you may not understand all of what you just read, but after reading the second option, you will get a better idea what I mean.
- Buying a Shelf Corporation and then Filing Taxes. As mentioned before, method is what some companies do before selling you these corporations with the taxes. Let me go into detail how it works. Some people buy a shelf corporation with no income, assets, bank statements or tax returns. In the process of acquiring business credit, they may come across an SBA loan and a business financing option that requires tax returns. They then decide to file tax returns for the company for the previous two years(which most loans which require tax returns want) and claim that they generated income(usually how much ever the banks requires). Once the tax returns are filed, they then use that to acquire the loan. After they acquire the loan they then go back and pay the taxes that they owe from filing the fake tax returns. THIS IS CALLED FRAUD. I have seen this work but the bottom line is, YOU CAN GO TO JAIL FOR A LONG TIME.
Ok. So What Should I do?
Even after explaining all of the above to some clients, they still come and ask the question, “What Should I do?”. My suggestion is to stay away from acquiring corporations with Tax Returns. Again, you do not have to take my advice, but by using multiple corporations and acquiring smaller lines of credit which each corporation, you can acquire the capital that you need for your business.