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Aged Corporations, Like Fine Wine, Should be Savored in Moderation

July 22, 2011

Aged corporations have their place in the business world.  An aged corporation, or shelf company, is a company that has no  activity.  The company may be a corporation or a LLC.  A shelf company may also be a shell company, but they are not the same thing.

There are many reasons a shelf company may have no activity.  When I started my business, I had no activity; fortunately, that has changed, over time.  But remember the business model of the incorporator.  His product is a corporation or LLC.  He builds an inventory of product by incorporating (or organizing) many companies, so that he can sell them quickly and easily.  If a company does not sell right away, it begins to ‘age.’  This is nothing sinister, so far.  In fact, incorporators have discovered that many people will pay more for a company that is older.  Still, there is nothing sinister – just supply and demand.

There are many legitimate reasons for buying an aged company: 1) it saves the time and effort involved in starting up a company; 2) it creates the appearance of corporate history; 3) it may aid in obtaining corporate credit; 4) it may help in getting investment
capital, 5) it seems neat.  Really.  That last one is a reason many people may buy an aged corporation.  In the asset protection arena, which is often fueled by seminars and books, buying a company can be a fad.  It seems like a good idea, but once the purchase is made, the buyer loses interest or doesn’t know what to do with it.  But more sophisticated buyers often have a specific purpose in mind for a shelf company.  Sometimes, an aged company makes the owner(s) feel good, because they have a company with a history.  And there is nothing immoral or illegal about trying to obtain corporate credit, boost investor strength or capital, or speed up the start-up.

But ‘shelf corporations’ make us feel uneasy because it seems deceptive to buy a 10 year old company and tout its history to the world without actually putting in 10 years’ worth of work.  After all, if I buy an aged corporation and advertise as “Joe’s Bait Shop – Offering Bait Since 1492” I’m really just deceiving the public in order to boost sales.  But is that different from the puffery a car salesman spouts, in anything other than degree?  And if you perform some reasonable due diligence when dealing with a company that claims to be older than it really is, what kind of harm is inflicted?

So shelf companies, or aged corporations, have their place in the business world.  But they are not for everyone.  The purpose they serve may range from an internal good feeling to aiding with corporate credit.  They are not for everyone, and they can be used for deceptive purposes.  Sometimes, there are innocent reasons why a company may age (I start the company, lose interest or opportunity for years, then get back to work).  In moderation, shelf companies serve the economy well.

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