Most modern businesses are operated as private limited companies. Whether you’re a newbie founder or a seasoned entrepreneur, understanding how to structure your business as a company is a key business tool.
You can either set up a company from scratch or opt to buy a ‘shelf company’ – a generic company that’s already been registered in your jurisdiction of choice. After you’ve bought it, you can tailor it to your business needs.
Here, we discuss the ins and outs of shelf companies to help you decide if this is the right next step for your business
Jump to:
- What is an off the shelf company?
- How are shelf companies formed?
- How are shelf companies different from other companies?
- Why buy a shelf company?
- What are the disadvantages of buying a shelf company?
- What is the process of buying a shelf company?
- What documents should you expect to receive from registration agents?
- What are the follow up requirements once you’ve bought a shelf company?
What is an off the shelf company?
An ‘off-the-shelf’ or ‘shelf’ company is one that’s been set up officially with all the necessary legal prerequisites in place so that a business can start operating very quickly under its umbrella once it’s been purchased. It remains dormant but on record as a company until it’s been bought and starts trading.
You (or your agent) begins the set-up process by filing a formal application with Companies House. Provided the application is complete and other formalities complied with, the business will receive a certificate of incorporation containing the date of incorporation and registered number.
How are shelf companies formed?
Shelf companies can be set up by anyone, but they are normally formed by registration agents who set up multiple generic entities at Companies House to be sold to buyers ‘off the shelf’.
A shelf company will generally look like this:
- It will have a generic name and often a number too
- It will have a single director and shareholder, usually an employee of the registration agent
- The registered address and registered email address will be that of the agent
- It will have a non-specific SIC code – this denotes the company’s area of business
- It will have a single ordinary share
- It will have a simple ‘model’ or generic Articles of Association
How are shelf companies different from other companies?
Under English law, there are different types of company:
- Limited companies with members (shareholders) who hold ‘shares’ that represent their stake in the business or other operations. The financial liability of the shareholders to the outside world is limited to the nominal value of the shares they hold. These can be either private (shares are held by a small circle of people) or public limited companies (shares can be owned by anyone)
- Limited companies owned by members who instead of buying shares offer a ‘guarantee’ to third parties that they will contribute a limited amount to the company if it goes into liquidation. These types of companies tend to be clubs and associations and are known as companies limited by guarantee
- Companies where the members’ liability to the outside world is unlimited financially. These are known as private unlimited companies and are uncommon
A shelf company is different from other companies only to the extent that it began its life as a generic company. Once you buy it, it’s ready to adapt to your needs and you can begin trading.
Why buy a shelf company?
One of the key benefits of buying a shelf company is that it can be done quickly, for example, if you need it as part of a merger or acquisition that’s completing imminently or you want to start trading straight away with the benefit of limited liability.
Having a registered company in place is also necessary for many types of transactions such as opening a business bank account, gaining credibility with suppliers and setting up business contracts. And, since the date of first registration can be some time in the past, this can give the impression that your company has some trading history.
What are the disadvantages of buying a shelf company?
Administration issues
Once you’ve bought your shelf company, there will be further work to do before it’s suitable for your use, such as changing the company’s name, company purpose, shareholders and governing documents to better suit your business strategy. Sometimes a registration agent will make these changes for your business as part of the sale and transfer.
Potential transparency issues
One benefit of buying a shelf company is that this can imply a long trading history. In reality, it’s easy to discover how long a business has been trading and that it began life as a shelf company by searching Companies House records.
Potential share issues
Company ownership structure and shareholder rights are major factors in dictating how a company is operated in practice. A shelf company will likely only have one shareholder and governing documents that reflect this simple structure. Changing this to reflect your business reality, particularly if you have co-founders and/or investors, can be complex and need negotiation and careful drafting.
Issues with company names
The original shelf company name given by the registration agent will always appear on the public record as part of its history. To start trading, you’ll need to decide on a new name quickly and register this at Companies House. Make sure the name you want isn’t already taken by searching the record, and that your name isn’t too similar to other businesses operating in the same market by carrying out a trademark search.
What is the process of buying a shelf company?
One of the first steps in buying a shelf company is for you, the purchaser, to acquire all the company’s shares. To do this, the registration agent will usually complete a standard form describing how much is being paid for the shares and the names of the seller and purchaser(s). This is then given to the company as evidence of the transfer of ownership, you’ll be given a share certificate and the new details will be entered in the company’s official records.
Usually, the agent will help you fill out all the Companies House forms and company documents to ensure a smooth changeover of company particulars. The agent (or you, post-sale) will also prepare board minutes for the new directors and shareholder minutes 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?
Once you’ve bought your new shelf company, you’ll usually receive the following documents as part of the sale process:
- Certificates: Signed and stamped stock transfer form, certificate of incorporation, certificate of name change and certificate of non-trading (if the shelf company has been dormant)
- Company constitutional documents: Memorandum and articles of association
- Company records: Company register of shareholders, company seal (if it has one), forms of board and shareholder minutes changing the directors, the company address and changing the Articles
What are the follow up requirements once you’ve bought a shelf company?
Here’s what you need to do after you’ve completed your shelf company purchase:
- Hold your first board meeting of new directors
- Update the register of directors with their new addresses
- Update your members register and PSC register
- Register your business for taxes with HMRC
At the first directors’ meeting, you’ll set the company’s accounting period, appoint directors and agree their service contracts. You’ll need shareholder approval if directors will have contracts longer than two years. You can also carry out other important business such as approving new contracts, appointing auditors and agreeing banking arrangements.
At the first shareholders’ meeting you can change the company’s name and the Articles if you need to.
Major changes such as the change of company name and Articles will need to be registered at Companies House. You can find all the necessary forms on their website.
