All legal entities are obliged to have formal book-keeping, as well as submit information about the financial situation of the company and its financial and economic activities subject to the legislation of the jurisdiction they are registered. However, not all registered companies are active in the business. Now, this brings us to the concept of what is a shelf company. If your company does not conduct any activity (for example, you opened a company for a specific project, which has not yet started, that is, the company is not used), then it would be worthwhile to declare your company as shelf company (inactive).
What is a shelf company
The definition of what is shelf company, which is sometimes called the aged corporation, applies to those legal entities that do not have significant accounting operations confirming any operational activity during the fiscal year. When determining the absence or presence of transactions in the company’s accounting, it should be taken into consideration that all amounts paid for company’s registration (such as registration fees, secretarial services) are not counted as transactions for the company’s business activity because they are mandatory fees that are paid to maintain the status of a registered enterprise. Such fees are paid by any company, regardless of its status, as long as it exists. These are obligatory fees and these transactions do not apply to business in any way. Thus, the shelf corporation has no right to receive, transfer money, to have assets that can bring profit and debts. The company ceases to be a shelf company if it makes an accounting transaction.
Companies can be declared dormant for various reasons. This is often done to keep the name, keep the company for some future projects, and preserve assets or intellectual property. The company can be dormant for as long as it needs to. However, the company will still have to pay for business registration, various annual services, and the legal address. At the same time, the director and the secretary of the company continued to fulfill their obligations. They also retain the responsibility for the registration of the necessary documents of what is a shelf corporation.
Qualities of a shelf company
To declare itself a shelf company the corporate must simply submit a specially issued application to the state company register office. It must be confirmed by all company’s directors. The company will then be recognized as officially shelf (or inactive) from the date of the company’s registration or starting from another specific date specified in the application.
The benefit of acquiring what is an off the shelf company status is that you can reduce the cost of maintaining the company if it is not currently working or is not yet involved in any business operations.Atrium Business Solutions
Moreover, the most significant benefit is that you do not need to close your inactive company (if you still have plans to use it in the future). Your company will retain its name, and you will avoid the cost of closing the company.
The requirements for the shelf company may vary depending on the jurisdiction. Although, the main obligations are:
- To pay all annual government fees for business registration.
- Have at least one director, one shareholder, a secretary, and a legal address.
- To report any changes in the company’s structure.
- File a zero tax return.
It will be possible to revoke the status of a shelf company when your company is ready to conduct (or resume) business. All that is needed is to submit a resolution to the Register of Companies.
From the other side, if you are not a business owner yet and only think about registering a new company, the option to purchase already existed but a dormant company is worth consideration. However, before making such a decision it’s necessary to get to know the requirements of local laws for legal entities. A registered company can stay on the shelf for several years before anyone needs it. You must be sure that this company was not really used at that time. Also, shelf companies impair the privacy of their future owners because their registries and documents can be seen by outsiders before they are acquired by the ultimate owner.