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Shelf companies are a kind of company that you can pick up “off-the-shelf.” Instead of registering a new company under your name, you buy one that already exists. But these shelf companies have not done any trading or business, and they also do not hold any assets or liabilities. They are essentially a clean slate you can pick up and almost immediately start doing business with. Shelf companies used to be a popular way to manage your business in the past, but setting up new companies now is a much more streamlined process. This article will explain why shelf companies may have been desirable and compare the processes of buying a shelf company and incorporating a new company.

Why Use a Shelf Company?

In the past, people used shelf companies mainly because they were a fast way to get your business up and running. This was because you did not have to go through the long process of setting up a new company, registering it and incorporating it. Registration could take a long time, and this could be detrimental to a business. So, solicitors, accountants, and special company formation services would have these companies sitting on the “shelf,” waiting for someone to buy them. Without any assets or liabilities attached to these companies, or past registered business activity, this meant that you did not have to worry about settling any past debts of the company, or other similar outstanding issues. 

The registration process for setting up a company now is no longer a time-consuming procedure. So, it is worthwhile comparing the process of buying a shelf company to incorporating a new company yourself.

Buying a Shelf Company

Buying a shelf company is much the same as purchasing any other company. Its owner has to give control over to you, and you both need to make several changes to the company itself. These may include:

  • transferring its shares to you, the purchaser;
  • changing its the address of service to one that you choose;
  • changing its current directors to new directors that you choose (which would involve a resignation process)
  • altering its name to one that you choose; or
  • changing its constitution (if it has one), or writing up a new one to suit your needs.

You must notify the Companies Office of these changes, and update the Companies Register.

One of the common reasons for purchasing a shelf company in the past was saving time. This meant that you could:

  • start trading and conducting business immediately;
  • gain access to investors and other financing measures more quickly; and
  • enter into and find new contracts faster.

Another benefit that made shelf companies more popular in the past was that they were older, so they seemed more credible to customers, clients and potential investors. This was because the aged companies appeared to have a corporate history.

Incorporating a New Company

Now, most people set up a new company, and incorporate it by registering it with the Companies Office. This is a much faster and easier process than before, and much more streamlined. In addition, you can do most of it online now, which makes it much more accessible. To register a new company in New Zealand, you get to choose your own:

  • unique company name;
  • directors and shareholders;
  • registered office and address of service;
  • number and type of shares assigned to each shareholder; and
  • company constitution details – whether you have one at all, or you tailor one to your needs.

It is much easier as an overall administrative process to set up a new company, rather than changing the already existing details of one. It is also cheaper, because transferring ownership of a shelf company to your name involves:

  • buying the company itself; and
  • paying transfer costs.

In contrast, incorporating a new company just involves the setup fees. This means that now, shelf companies are no longer as popular as before.

Key Takeaways

A shelf company is a business structure that was popular in the past.You could buy an already existing company “off the shelf” instead of incorporating a new company. Company registration took a lot longer. Therefore, having a ready-made company was beneficial if you wanted to get business started immediately. However, registering a new company now is, comparatively, a more straightforward process. It is much cheaper than buying an aged shelf company and transferring it into your ownership. It is also much faster, and you can do it online. If you would like more information or help with deciding how you want to set up your company, contact LegalVision’s business lawyers on 0800 005 570 or fill out the form on this page.

FAQS

What is a company?

A company is a way you can structure your business – it is a separate legal entity that you can give a name to. This means that it can do a lot of the same things a person can do in the law. It can own assets, be liable, and have debt.

What is a shelf company?

A shelf company is a kind of company that you can buy “off-the-shelf”. This means that this is a ready-made company, waiting on the “shelf” for someone to buy it. It has never traded or conducted business, and has no assets or liabilities.

Is it worth it to buy a shelf company?

Shelf companies were popular in the past when registering a new company took a long time. They meant that you could start business immediately, and have the appearance of a corporate history because the shelf company had already existed for a period of time. But, setting up a new company now is a much simpler and faster process, and buying shelf companies has fallen out of practice.

How do I set up a new company?

You can set up a new company online in New Zealand at the Companies Office website. You have to come up with and reserve a unique name for your company, collate contact information for your company, and register your directors and shareholders.

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