Starting a business or merging with another company isn’t the only route to speedy success. If time is of the essence, and you want to take advantage of the benefits of inheriting a ready-made business, buying ‘off the shelf’ may be a practical route to take. Here, we look at some of the reasons why a business might want to purchase a shelf company and discuss how to do so. Discover the technical details of how to buy a shelf company to help you to better assess whether or not it’s the right strategy for your business.
What is an off the shelf company?
If a company is referred to as being an ‘off the shelf’ company, it is likely that it is a limited company that has already been incorporated in England and Wales under the Companies Act 2006 and is essentially, sat on a metaphorical shelf, ready to be bought and used by a new or existing business.
This ‘ready-made’ company will have been set up (usually by a registration agent whose business it is to set up and supply shelf companies to other businesses) in a standard, generic manner so that a buyer can tailor it to the needs of its business or project, without having to incorporate a bespoke company itself.
How does this differ from other companies?
It is worth starting by saying that under the Act, a company can take various forms:
- A company limited by way of shares, which means that a member’s liability is limited to the amount as yet unpaid on the shares held by that member. This can be a public or private company; or
- A company limited by way of guarantee, meaning a member’s liability is limited to the amount that they have agreed that they will contribute if the company goes into liquidation. This can be a private company; or
- An unlimited private company where there is no limit on the liability of its members – these members could then be responsible for all of the obligations and liabilities of the company.
A company is a 'public company' if it has chosen to raise capital by offering shares to the general public. It has limited liability and its shares are available to be bought or sold by a range of people in a range of ways. The company’s certificate of incorporation also has to state that it is a public company. The Act states that a company is a 'private company' if it is not a public company. A limited company can also become a community interest company which are companies that often carry out work of a social or benevolent nature.
There are increasingly complicated corporate governance requirements imposed on both private and public companies under English law and a business should make sure that buying a company is the best way for it to achieve its goals. Having said that, limited companies can be good investment vehicles. They can offer limited liability to investors and can make doing business with third parties and funders easier as companies incorporated under the Act are often seen as more accountable than sole traders or some partnerships.
A company is incorporated when a certificate of incorporation is issued by Companies House. If the application documents contain all of the necessary information, have been submitted and the correct fee has been paid, the business will receive a certificate of incorporation setting out when the company was incorporated and what the company’s registered number is. Once a business has this certificate, it means that its company has been properly incorporated in accordance with the Act and will be searchable on the Register of Companies.
A shelf company is different from other companies governed by the Act only to the extent that it has already been incorporated (it has its certificate of incorporation) and once sold, it is ready to be used by a business and does not need to be set up or incorporated from scratch. It is a company that is already registered with Companies House but has not yet begun trading.
Why buy a shelf company?
There are pros and cons to purchasing a shelf company and ultimately whether a shelf company is suitable for your business will depend on the type of business that you run and the intended purpose for the company that is being acquired.
One of the key benefits of buying a shelf company is that the process can be fast, and the company can be ready to use quickly. This can be helpful, for example, if it is needed as part of a transaction structure for an acquisition that is completing imminently.
One of the considerations of buying a shelf company is that the company’s constitution (which includes the memorandum of association) and the company’s articles of association will not be tailored to your company but will be standardised.
The shelf company will most likely have adopted the Model Articles of Association that are provided for by The Companies (Model Articles) Regulations 2008 (SI 2008/3229). The Act says that these Model Articles apply by default to any company formed and registered under the Act. There are different Model Articles for private companies limited by shares, private companies limited by guarantee and public companies. A shelf company will also have already been given a random name that is likely not to reflect your brand.
In summary, this means that once you have bought the shelf company there will be further work to do before the company is suitable to be used for your purposes, such as changing the company’s name and perhaps some of the elements of the governing documents to better suit your company’s strategy (number of directors required, rules around a valid meeting being called, veto rights for shareholders, for example). Sometimes a registration agent will make some of the changes for your business as part of the sale and transfer.
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What is the process of buying a shelf company?
To purchase a shelf company, a purchaser will need to buy all of the share capital in the company so that they own the company in its entirety. To do this, a legal transfer instrument called a stock transfer form will need to be fully executed by the transferor, in this case the registration agent.
An example of a stock transfer form can be found in Schedule 1 of the Stock Transfer Act 1963 (as amended) but the Act states that all that is needed for a form to be considered to be a proper instrument is that it sets out:
- The details of the consideration (the value) that is being paid for the shares
- The names of the transferor and the transferee
- The details of the amount
- Type of shares to be transferred
Usually, a proper instrument for transfer will trigger stamp duty. Unless an exception applies, the Finance Act 1999 states that the transfer of shares in a private company will attract stamp duty tax that is payable to HMRC. In practice, stamp duty is almost always paid by the purchaser of the shares (the transferee). Once stamp duty is paid, the stock transfer form will be stamped by HMRC and then it is ready to be presented to the company for registration before it is considered a complete and valid instrument of transfer.
The transfer of the legal and beneficial interests in the shares may to be documented in a simple share purchase agreement. It can be a good idea to have a share purchase agreement in place, but it is not legally required. These agreements will deal with several issues and usually include contractual protections for both the purchaser (such as warranties) and the seller as to the status of the company and the title in the shares themselves.
However, it is rare for a share purchase agreement with a registration company to have very many warranties other than perhaps that the seller has the capacity to sell the shares, the shares are sold free from any burdens or encumbrances and that the seller holds the legal and beneficial title to the shares. A share purchase agreement for a shelf company should not be heavily negotiated but your business will need to make sure that not only does the registration agent transfer the shares of the company to you but that they give up any and all control of the company, effective from the date of the share transfer.
Once the registration agent has registered the transferee as a new shareholder in the company’s register of members the company can issue a share certificate to the new shareholder. This should set out how many shares it holds and the type of shares that are held in the company. The share certificate is evidence that the transferee is the legal owner of the transferred shares.
Usually the registration agent will assist with completing the required Companies House forms and board minutes to make sure that there is a smooth changeover of company particulars. It is common for the purchaser to fill in a questionnaire to enable the registration agent to complete the relevant Companies House forms.
The agent (prior to sale) or the purchaser (in the first meetings post sale) will also need to prepare board minutes for the new directors of the company and shareholder minutes or resolutions for the new shareholders. This will enable them to do things like change the company’s name or more generally to amend the articles of association so that they better suit how the company is to be run.
What documents should you expect to receive from registration agents?
There are a number of incorporation agents in the UK that sell shelf companies and who are experienced in the sale process. They will provide a buyer with a pre-prepared set of simple transaction documents to affect the transfer of shares in the shelf company to the new owner(s) of the company.
On completion of the sale, a buyer of a shelf company will normally receive the following documents:
|Type of Documents||List of Documents|
|Sale documentation||Signed and stamped stock transfer form|
|Incorporation documentation||Certification of incorporation|
Certificate of incorporation on change of name if the name has been changed
Certificate of non-trading confirming that the company has not traded since incorporation and has no outstanding debts or liabilities
|Company constitutional documentation||Memorandum of association|
Articles of association
|Company governance documentation||Company registers|
Company seal (if it has one)
Board minutes resolving to appoint directors, secretary, accepting the resignation of directors and secretary, changing the company’s address
Shareholder minutes or written resolutions resolving to change the company’s name or change the articles of association
What are the follow up requirements once you’ve bought a shelf company?
Following the purchase of a shelf company there will be various matters for your business to action, such as:
- Holding its first board meeting with its new directors.
- Updating the register of directors (including their residential addresses and service contracts) and secretaries.
- Updating the register of persons with significant control and the register of members (if this has not already been done), which will all usually be held at the company’s registered office.
- It is also important to register with HMRC in case of any ongoing corporation tax obligations.
The first shareholder meeting can be used to change the company’s name (which can usually be done by way of a special resolution (this being a resolution passed by more than 75% of the eligible shareholder votes) or a written resolution (that requires the signature of all of the shareholders signaling their approval of the resolutions). The name of the company will be changed once the Certificate of Incorporation on Change of Name is issued. Changing the company’s articles of association can also be done by passing special or written resolutions.
The first board meeting can be used to approve the changing of the company’s accounting reference date. According to Companies House, for all new companies, the first accounting reference date is set as the last day in the month in which its first anniversary falls and the subsequent accounting reference dates will automatically be on the same date each year. Your business may already have its own accounting policies and you may need to align your company’s accounting date accordingly. A simple form will need to be completed and sent to Companies House within the delivery time of the accounting period if your business wishes to change the date.
The first board meeting could also be used to appoint any directors that had not already been appointed and to approve any directors’ service contracts. If the service contract is for a fixed period that is longer than two years, then shareholder approval is required. This will need to be addressed in the general meeting of the company.
Other matters that that might need approval at the first board meeting could include approving major commercial contracts, appointing auditors to the company if the company’s accounts are likely to need auditing, and approving the banking arrangements and in particular the banking approved signatories of the company.
After these meetings, the new directors of the company, or the company secretary will need to complete Companies House forms (either in hard copy or electronically) and file them with any additional documents and the fee required with the Registrar of Companies within 15 days after the board meeting.