Don’t Believe the Hype: Myths about Shelf / Aged Corporation to get Corporate Credit

As the times get harder during this recession the economic cries of the small business owner can be heard throughout the high rises, the strip malls and office buildings of America.  What are they saying, “Help us, we are in debt and we need more credit to create the opportunity and resources to get us out of debt.”  With this type of attitude you don’t want to succumb to the credit companies that circle the last of your resources like vultures.  You will be told that you need an aged or seasoned corporation because no one will fund a new business (start up business) without requiring a personal guarantor and no one wants to personal guarantee. 

Common Reasons for a shelf/aged corporation

  • To save the time involved in taking the steps to create a new corporation.
  • To gain the opportunity to bid on contracts.
  • To create an appearance of corporate longevity.
  • To gain access to investment capital.
  • To gain easier access to corporate credit.

Definition

Aged Corporation - is ready-made corporation that has been available for a period of time with no business activity, no liabilities and no assets

The Truth…if an aged corporation has no business activity, no liabilities and no assets – it will not be of any value to you to build credit.  This inactive entity will show a period of dormancy that any underwriter will be able to detect.  Has the ownership, officers, name, venue changed abruptly, because if so even DNB will consider this a new business and the funding limitations will be that of a standard SBA loan for a start up.

1.      Before you engage research the company you are doing business with…

2.      Before you buy shelf corporations see whose shelf it has been sitting on…

Okay so they have told you that they you need to buy shelf or aged corporations that have been groomed for this very moment of you acquiring credit.  Make sure that once you purchase this corporation that you check out the history; where has it been, who were the owners, was it ever in default?  Certain aspects of the history will affect the probability of you establishing credit.  Underwriters are not stupid and neither are you, ask the following questions:

Who owns the corporation?  Will I get the stock certificates? Did you farm (grow in house – from corporate filing ‘til now), pirate (acquire a corporation in default) or acquire from a third party the corporation that you are selling me?   Will I be provided with the minutes and resolutions of activity or at least annual compliance? Will you be providing tax returns? Will you be providing financial statements? How much will this cost up front?  How many points will this cost me on the back?  How much will this cost in maintenance?