In Short
- Shelf companies are pre-registered companies sold to entrepreneurs for a quick start.
- They are typically inactive, with no prior trading activity or financial history.
- The rise of online incorporation makes shelf companies less cost-effective and less popular.
Tips for Businesses
If you are considering a shelf company, do thorough checks to avoid potential risks, as they may be used to bypass regulations or engage in fraud. Given that incorporating a company online is often quicker and cheaper, it’s worth exploring this option before opting for a shelf company.
A shelf company, also known as a ready-made company, is a pre-registered limited company that has been ‘left on the shelf’ for a period of time before being sold. Shelf companies are created by agents and sold to entrepreneurs who want to quickly begin trading through a company. Historically, they were the fastest way of acquiring a company; however, the digitisation of incorporation procedures has seen them become increasingly obsolete.
This article explains what shelf companies are, their decreasing relevance due to modern online incorporation processes, and the steps involved after purchasing one.
Key Points About Shelf Companies
- Pre-Formed: They are established and registered with Companies House before being sold.
- Inactive: They typically have no prior trading activity or financial history.
- Age: They may range from a few months to several years old.
- Compliance: Basic legal requirements are usually maintained during the inactive period.
- Quick Acquisition: Buyers can purchase and start using them immediately, avoiding the previously time-consuming incorporation process.
- Perceived Credibility: Some buyers believe older companies appear more established.
Businesses often use shelf companies for a quick start or to create the impression of a longer operating history. However, some people may use them to bypass regulations or commit fraud, so it’s essential to do thorough checks before using them.
While a shelf company may give the impression of a longer trading history, a quick scan of Companies House will reveal that the company was dormant.
Are Shelf Companies Now Obsolete?
Historically, shelf companies provided a quick way to start trading, bypassing the need to file incorporation documents and wait for the certificate of incorporation from the Company registrar. This was considerably faster when the incorporation process was entirely paper-based. Today, the Companies House website allows for rapid incorporation of new companies, often within 24 hours or less. In practice, incorporating a company is usually faster than buying and converting a shelf company.
Consequently, shelf companies may no longer be the most cost-effective option.
Continue reading this article below the formWhat Steps Do I Need to Take Once I Have Purchased a Shelf Company?
Upon acquiring a shelf company, certain formalities must be addressed promptly. This includes notifying Companies House of changes in directorship and shareholders. Many company registration agents include this service as part of their offering.
Key post-purchase steps, which may be undertaken by you or your agent, include:
1. Board Meeting
This meeting formalises the transfer of ownership. The new directors should appoint themselves, accept the outgoing directors’ resignations, and transfer the shares to the new shareholders. They should also approve any purchase costs and make initial business decisions.
2. Company Name Change
If desired, shareholders (usually the new shareholders) must pass a special resolution to change the company name and submit the notification of the name change to Companies House along with the resolution.
The existing articles may need amending or replacing entirely to suit the new business structure. This requires a special resolution. You should seek specialist advice if you’re planning to issue different share classes or grant specific shareholder rights.
4. Registered Office
You must file forms with Companies House to change the registered office address. This address will be publicly available and receive official communications. Often, your agent will require you to change the registered office because they will associate the shelf company’s address with their own address.
5. Accounting Date
You can decide to change the company’s accounting reference date by notifying Companies House. The new owners might do this to align with the financial year of their other businesses or tax planning strategy.
6. Appointing Directors
New directors must appoint themselves using the correct procedure and inform Companies House. Ensure all required information is provided, including personal details and service address.
7. Issuing Shares
You may want to issue further shares to reflect the desired structure of your company. You will also need to update the Persons with Significant Control (PSC) register, following the purchase of the shares and any additional share issues, which will include lodging certain Companies House forms as required for your particular circumstances.
Considering purchasing a UK business? Download this free guide for practical tips on conducting due diligence and reducing risks.
Key Takeaways
Now that the Companies House incorporation service has moved online, there are a few advantages to purchasing a shelf company. The process is no longer faster, and a quick check can dispel the illusion of a shelf company having a long trading history. Going forward, shelf companies will likely only see limited use. If you are looking to incorporate a company, you can use the incorporation service to tailor a company to your needs.
If you need assistance in navigating complexities around shelf companies, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A shelf company is a pre-registered limited company that has been left dormant for a period before being sold. It allows business owners to quickly start trading without having to go through the usual incorporation process. These companies typically have no prior trading activity or financial history.
Shelf companies are less relevant today due to the digitisation of company registration, which makes incorporation much faster and easier. As the process of registering a new company can be completed in less than 24 hours, shelf companies are now considered less cost-effective and have limited use.
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