Shelf Companies: Some Myths busted!
Due to a lack of information within the public domain, there are a lot of myths and misconceptions related to the shelf corporation industry. This industry has also received a lot of bad press, and thus some people have associated negative connotations with shelf companies. People tend to get confused between shelf companies and shell companies, as they sound similar, and both are linked to the spheres of tax planning and corporate finance. But there is a significant difference between these 2 kinds of companies as we have explained quite succinctly here. Having operated successfully as a seller of shelf corps for a substantial period of time, we’ve seen a fair share of ups and downs but have always focused on educating people about our industry. In this post, we’ll bust some of the major myths related to the shelf corporation niche. These will help you understand the industry in a much better manner, and you will begin to know what shelf companies can do for you, and what they cannot! This will help you plan in a much better manner because you would now have complete information about the pitfalls that lie ahead if you make the same mistakes that so many have made before you.
Shelf Corporations are used only for tax evasion and hiding ownership
Some years ago, Reuters ran a detailed investigation of a seller of shelf corporations and exposed some shortcomings. However, it is really important to know that the seller had not indulged in any malpractices. Instead, it was the buyers of the shelf companies that were using them for nefarious purposes. There has been no action against the seller as he has been not been found to be guilty of any malpractice by a court of law. The buyers used the companies for some shady dealings and were duly exposed by the authorities. This cannot be said to be the fault of the shelf company industry, right? The onus is on the buyers to ensure that the shelf corporations on sale which they purchase are not used for any illegal purposes, and if these companies are used for some shady dealings, then the liability for the same falls squarely on the buyer. Shelf corporations have a variety of uses for businesses, and we’ve elaborated them in great detail here and here. In the sector as a whole, thousands of shelf companies are bought and sold every year for legitimate business purposes.
Now, It is true that many large corporations use shell companies, and not shelf companies, for camouflaging ownership and managing their taxes. This is a totally different sphere of finance from where the shelf corporation industry operates. Big corporate groups usually incorporate shell companies in states with very little tax and regulatory restrictions, or in countries that are known to be tax havens. These shell companies are then used creatively to minimize the tax and regulatory burden on these companies, thus helping them save billions of dollars in taxes. On the other hand, most people who buy aged shelf corporations are small businessmen looking at more efficient ways to access credit, and not big corporate honchos, who have a variety of financial strategies to achieve their goals.
Shelf Companies can be used to get instant funding of hundreds of thousands of dollars
This is the most common misconception in the shelf corp industry. Having this misconception can cost you a lot of money, Sellers promise you shelf companies that will get you credit lines of hundreds of thousands of dollars instantly. They sell these so-called shelf corporations with credit for very high prices indeed. However, no lender with properly defined norms will lend a huge sum of money to a shelf company as it does not have any operations as such.
Financial institutions have operated for hundreds of years and make billions of dollars in profits annually due to the fact that they are prudent at the time of lending. They have strict norms that they need to follow before they can approve your credit application. They are required to investigate the antecedents of your shelf company properly and it is after completing the mandatory due diligence that they can offer you access to even a corporate credit card. You might get lucky if a slightly careless employee does not do as thorough a check as is required by the institution but businesses that rely on luck do not get really far. The proper way to develop shelf corporations with credit is to slowly start transactions with your shelf corporation, then apply and get approved for a corporate credit card. As you slowly build your payment and transaction history, the financial institution will increase your credit limits. This is a far more sustainable and achievable model, though it will take time. Thus, a proposal for an aged corporation with credit is not for fly-by-night operators. This is for people who are willing to invest their time as well as their money in building a sustainable business.
Purchasing services from rating firms will lead to a better Paydex score
We hope that most of you reading this article would know about the Paydex score that is assigned to every US business by Dun & Bradstreet (D&B), one of the premier rating agencies in the world. If you do not, then we would like to request you to read our interesting concept note on Paydex scores here. We can help your company to achieve high scores in a quick time through our ’80 Paydex Program’.
Most rating agencies sell credit building services to customers, and you might get convinced by their world-class sales pitches. These companies might not say it upfront, but people feel that if they buy these services, then these agencies will give your shelf corp a better Paydex score than it deserves. This is a huge fallacy! Your Paydex score is based on the information that your creditors report, and the credit building services that D&B offers have no impact on your score whatsoever.
Though these are marketed as services that will transform your business, the costs of these services do not justify the end results. There can also be some unforeseen negative impacts that these credit services might have on your business if you are not careful. We know this because have seen our clients getting affected right in front of our eyes. When you buy these services from D&B, then as part of its analysis of your business, D&B might start an audit of your firm to understand your business better. The audit is done professionally and in the course of the audit process, the auditors will surely examine the corporate history of the shelf company, exposing things that you might have wanted to keep hidden. Thus, instead of giving you a better chance of accessing credit, these services might actually prove to be harmful to your business!
Shelf corporations with developed trade-lines/tax returns are available
This is one of the most common scams perpetrated by tricksters in which they endeavor to lure you by offering you aged corporations with credit facilities. They show you fake documents such as tax returns and other financial statements to make these companies look legitimate. Most people look to buy shelf corporations for accessing credit, so they’re easy to fool as like everyone else they’re looking for a better deal! If god forbid, you use these fake documents to apply for credit then you will most probably be caught and held responsible for falsifying documents. Thus, your attempt to speed up the credit process for your shelf corp could lead to time in jail with all its devastating impacts on your physical and mental health. It will also impact your family immensely, and land a knockout blow to your reputation, from which you will find it very hard to recover. Therefore, you need to be very careful and verify each promise that your seller makes. The world of business is a ruthless place indeed, and there is no mercy and very little redemption for any mistake that you make!
All of you need to know a basic fact about shelf corporations on sale- these companies, by definition, should have no operating history. They only need to fulfill the bare minimum regulatory formalities to ensure continued existence. Thus, an aged shelf corporation with credit cannot exist.
Let us explain how this scam is perpetrated by these people. They use false and backdated documents to show you trade-lines that were never there in the first place! They will use these false trade-lines and other documents to demand large sums of money from potential buyers. These aged corporations with credit are very attractive for potential purchasers and many people fall prey to these cheats as they have both the confidence as well the tactical nous to pull off this con. If you do the required due diligence, then there are chances that you will protect yourself from such tricksters.
We hope that we’ve put across some relevant information for our readers, and you’re always welcome to comment on this post or discuss with us your future business plans, as we can help you fulfill your dreams!
