What type of Shelf Corporation should I use? A question from a client.
You may or may not know, but when talking about Shelf Corporations, there are two general types that people try to acquire and sell, and in dealing with a cient of mine(the first client I have that is based in Australia), we were going through what types he should use and why.
So, there are those shelf corporations that have been incorporated, and left on the “Shelf” to age and there are those corporations that have been in business, defaulted on the states fees, went inactive and then reinstated to be used again. Many business credit experts do not like to talk about every aspect of the industry, but my aim is to ensure that you understand all aspects of it. I will like to go into a brief explanation of both types of corporations and then go into if or when each should be used.
Defaulted or Out of Status Corporations that are Reinstated
If you did not know, I am glad that you are reading this. Some Shelf Corporations that are being sold and used are corporations that have been incorporated, the owners missed on the yearly state payments and the corporations have gone inactive. These corporations are generally cheaper, many of them come with established credit files, and they can be a great asset when trying to build business credit very quickly. The entire process of acquiring these shelf corporations successfully and using them are covered in Shelf Corp Magic, and takes a matter of days to complete. You can acquire these corporations for as little as $100 and they can come with very strong paydex scores.
Shelf Corporations that have been sitting on the Shelf
These corporations are usually much more expensive(I sell 3 year old corporations that have never been reinstated for $1200), and sell for anywhere from $1200-$10,000. They generally do not come with established credit files, but can be of great value when trying to speed up the process in building business credit as well as getting contracts(usually government contracts) that younger corporations generally will not get.
So which type of shelf corporation should I use?
This is a question that many people will like to ask, but usually do not get into it because no one ever gives a straight forward answer.
Now, when acquiring credit, the aim is to appear(if you are not) an actual company. If you are using a shelf corportion and you were not actually in business for more than 2 years, everything in yoru power should be done to dot all i’s and cross all t’s. In looking at the reinstated corporations, the truth is, some companies to forget, or miss the yearly payment of their states fees(although it is not common, it happens). So this is not usually an indication that you will be denied credit when applying with this type of shelf corporation. I have had success in acquiring hundreds of thousands of dollars in business credit over the years with this type of corporation. In my experience, the creditors do not make a HUGE issue of it. You may have to provide additional paperwork, such as a utility bill or a business license as proof that you are actually in business, but that it is. Also, you will want to stay away from Corporations that have been in default for more than a year. With these corporations, the issue is usually DnB. In my experience, they flag between 20-25% of these corporations, but the money that is saved doing it this way is worth it.
Now the corporations that have been left on the shelf work just as well and are flag much less often with DnB. The issue is that they are much more expensive and they take a couple more weeks to build out(using DnB credit builder programs) then the reinstated corporations. These corporations are more solid but they are much more expensive.
To answer the initial question, it depends on your circumstance. In the situation with my Australian client who asked the question, he has a 3 month time frame and a strict deadline to come up with some business credit to purchase a business that is for sale. In his situation, he has decided to go with using multiple shelf corporations that have not been reinstated to reduce the risk of being flagged by DNB for that specific project, but he plans on using some reinstated corporations to build business credit for other ventures that are not as time sensitive.
I hope this clears up a number of questions and feel free to email or call me with other questions.