When starting a business, most entrepreneurs assume they need to register a brand new company from scratch. But what if there was a way to bypass the initial setup process and jump straight into trading? That’s where shelf companies come in.

A shelf company (also known as a ready-made company) is a pre-registered business that hasn’t conducted any trading. Essentially, it has been “sitting on a shelf”, waiting for someone to buy it and put it to use. This can sound like a shortcut to getting a business up and running, but is it the right move for you? 

In this article, we’ll break down the biggest benefits of purchasing a shelf company, along with the most important things to consider before buying one. Let’s start with the basics:

What is a shelf company?

A shelf company is a limited company that has already been incorporated but has never traded. These companies are typically set up by legal service providers and kept dormant until sold. They have generic names, standard articles of association, a registered address and a unique Company Registration Number (CRN).

When you buy a shelf company, you take ownership of an existing legal entity, which means you can start operating immediately and don’t have to register and start from scratch. You can update the directors, change the registered address and possibly rename the company - but the original incorporation date remains, giving the impression that the business has been around for a while. .

The benefits of buying a shelf company

Depending on your business needs, here are some of the key benefits:

1. Instant business credibility

An older incorporation date can create the appearance of a business that has been around a long time, which may be appealing to clients, investors and suppliers.

2. Faster business setup

Registering a new company takes time, especially if you’re dealing with administrative delays. A shelf company allows you to skip that whole process and start trading immediately, which is useful if you need to secure contracts quickly.

3. Easier access to business banking and credit

Some banks and financial institutions are hesitant to offer credit or loans to newly registered businesses. A shelf company with an older incorporation date may have an easier time securing financing or setting up business banking accounts.

4. You’re guaranteed a valid company name

Choosing a company name can be a frustrating process, especially if your preferred name is already taken. When you buy a shelf company, you can opt for one with a pre-approved name, saving you the hassle of having your name rejected by Companies House.

5. Shelf companies can give you a competitive edge in certain industries

Some contracts require a business to be established for a certain period, and using a shelf company helps you meet this requirement instantly.

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Things to consider before buying a shelf company

While shelf companies do have some attractive benefits, they’re not right for everyone. Here are some things to consider before going down this route: 

1. It’s more expensive than registering a new business

You’re paying for the convenience of an already-formed entity, so expect to pay a premium compared to starting from scratch.

2. No trading history (unless otherwise stated)

Shelf companies are designed to be dormant, meaning they have no financial history that could help with securing credit or investment.

3. Possible legal and compliance issues

Before purchasing a shelf company, you have to do your due diligence. Some providers may sell companies that have been previously used and may carry unknown liabilities or compliance issues. Always check that the company has never traded and that all required filings are up to date with Companies House.

4. You’ll still need to make updates

Once you purchase a shelf company, you must update Companies House with the new director and shareholder information. This ensures that the legal ownership is properly transferred to you.

5. Potential mismatched branding

The pre-approved name may not align with your branding, and while you can change the company name later, this will involve some extra steps and potential costs.

Tax and legal considerations

On top of the above considerations, remember that buying a shelf company does not change your tax and legal obligations. From the moment you start trading, normal UK tax rules apply:

• Corporation tax: Shelf companies are dormant before sale and won't have previous corporation tax obligations. Once trading begins, you'll need to register the company with HMRC and pay corporation tax (currently 25%) on your profits. Be aware of your company's financial year-end date, as this impacts when your first tax filings are due.
• VAT considerations: Shelf companies usually don't come pre-registered for VAT. If your business turnover exceeds the VAT registration threshold (£90,000) or if you voluntarily choose to register, you'll need to apply with HMRC after purchase.
• PAYE and payroll: If you plan to employ staff, you'll still need to register for PAYE with HMRC.
• Ownership transfer: Legally transferring shares to you involves a stock transfer form. You must update Companies House with new directors, shareholders, registered address and potentially the company's name.
• AML (Anti Money Laundering) and identity verification: UK regulations mandate identity verification for new directors and Persons with Significant Control (PSC). Shelf companies are subject to the same anti-money laundering checks as any other company formation.

If you’re ever unsure about anything related to your company’s legal or tax obligations, it’s always worth getting advice from a team like one of our friendly accountants and tax advisors at Crunch, who can walk you through the considerations and help you decide what option is best for you. 

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When might an entrepreneur choose to buy a shelf company?

Entrepreneurs, sole traders and SMEs often use shelf companies in scenarios like:

• Needing to set up a company quickly: When you need immediate corporate status for signing contracts, tenders or engaging in business activities.
• Switching from sole trader to limited company: When you’re quickly moving from being a sole trader or freelancer to having a limited company.
• Meeting contractual or financing requirements: Some contracts or financing agreements need companies to be established for a minimum period.
• Creating special purpose entities: Quickly forming subsidiaries for mergers, acquisitions or restructuring.

However, if you're not in a rush and want total control from the outset, forming a new company is often simpler, cheaper and avoids extra admin steps.

Is buying a shelf company the right move for you?

Shelf companies can be a useful tool for entrepreneurs looking to earn some instant credibility, skip registration delays or get quicker access to certain business opportunities. However, there are a lot of things you need to take into consideration before buying one - like deciding whether it’s worth the extra fees, and taking the time to do your due diligence.

If you’re thinking about purchasing a shelf company, make sure you fully understand the legal implications and do all of the proper checks. Whether you decide to buy a shelf company or register a new one from scratch, choosing the right business structure is a key step in setting your venture up for success. 

At Crunch, we're always here to help you make informed decisions about how to set up and manage a new company efficiently and compliantly. Get in touch with our team today to find out more. 

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