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Home > Ask The Get Out of Debt Experts > Should I Buy a Shelf Corporation to Start a Business? I Have Bad Credit.

Should I Buy a Shelf Corporation to Start a Business? I Have Bad Credit.

“Dear Steve,

I’m starting a new business with poor credit and I was wondering if I should purchase one of these shelf corporations.

Are the purchase of shelf corporations legal?”

Question Theme

Having been in business for a long time and having formed companies in more than one country I can tell you that I simply can’t see any value in buying a shelf corporation.

For those that might not be aware, a shelf corporation is a company that was previously formed and is then sold later as a shell in existence. The hope is that it will bring credibility and make it easier to get credit.

But a company that has been sitting on the shelf after formation for a couple of years has nothing to show for itself. No sales, no revenue record, no activity.

There is nothing that prevents you from starting a company with bad credit. And as a small business you are most likely going to have to personally guarantee any loans or credit the business takes out anyway. So the value of the shelf corporation is that it was formed some time before and aged a little bit, but so what.

If you buy a shelf corporation and have to personally guarantee any line of credit you apply for then you are a guy that overspent for forming a company that still has bad credit.

Maybe the smarter thing to do would be to deal with your credit issues and then form your business. To repair your credit, read this guide.

The people that are most likely to try to persuade you to do this are the people that sell shelf corporations. It would be interesting to find out if they started their companies by using a shelf corporation. I would be most did not.

And then there is the concern that masquerading under a history that is really not your is fraudulent. As one Businessweek story said.

Is this practice illegal? Our conclusion was that it is clearly unethical and possibly illegal. I understand that small business owners are strapped for cash and unable to get loans, but they should stay away from these things. If you can’t get a loan from a bank, you need to look at other options and maybe even close your doors. It’s a bad time, but if you can’t secure capital with what your company has in assets, liabilities, and cash flow, you shouldn’t try to fool a financial institution. – Source

Bottom line for me is, what’s the point?

Please post your responses and follow-up messages to me on this in the comments section below.

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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