If you have set up or are thinking about setting up a UK limited company, you may have come across the term ‘shelf company’. In this post, we’ll explain what shelf companies are, why someone may wish to purchase one, why we think you’re better off starting your own company from scratch, and more. Let’s jump in.
What is a shelf company?
A shelf company is a limited company that has been pre-registered with Companies House (the UK’s registrar of companies) for the purpose of selling it on at a later date.
Shelf companies are also often referred to as ‘off the shelf’ or ‘ready made’ companies.
What are the benefits of a shelf company?
Shelf companies were particularly popular when the process for registering a UK limited company was completed via paper documentation rather than the online method with which we are now familiar.
It typically took a number of weeks for a company to be formed and rejection rates were considerably higher than they are now, as mistakes were more commonplace when using paper documentation.
Shelf companies appealed as business owners could circumnavigate lengthy formation times and the risk of rejection (and in turn, an even longer formation time).
Now, the ability to form a company online in a matter of hours via an online ‘wizard’ that walks you through the entire formation process (and so reduces the likelihood of the application being rejected) has all but eliminated this benefit.
An arguable advantage that does still stand, is that a shelf company can give a sense of stability and prestige, as the company has been in existence for a period of time.
This may appeal to business owners who wish to give the impression that their business is older than it is, and not a brand new endeavour.
How are shelf companies formed?
Shelf companies are primarily formed by company formation agents (whilst we are a company formation agent, we do not sell shelf companies). The incorporation process for a shelf company is exactly the same as for a regular company.
Regarding the specifics of the formation:
- The chosen company name will be generic, providing no insight into the industry or geography
- The director and shareholder (companies are formed with the minimum number of appointments) are generally individuals employed by the agent who will have no actual relationship to the company being formed – they are simply placeholders
- The registered office address will be the address of the agent
- The SIC code, this being the reference that’s used to define the company’s industry, is normally set as 74990 (non-trading company), 82990 (other business support service activities n.e.c.), or 99999 (dormant company)
- Companies are formed with a simple share structure of one ordinary share worth £1.00
- The Model articles of association are implemented
Once a shelf company has been registered with Companies House, the business responsible for its formation will keep the company compliant by:
They will continue to maintain the company for as long as it is under their ownership.
How does a shelf company service work?
The agent will normally advertise their available pre-registered companies on a dedicated page on their website. This will typically include the company name, the date of incorporation, and price. The older the company, the more you can expect to pay. Older companies are sometimes referred to as ‘vintage companies’.
Once a customer has chosen a company and made payment, they will be asked for the following information:
- Registered office address for the company
- Director information (name, date of birth, nationality, occupation, residential address, and service address)
- Shareholder information (name and service address)
- New company name (sometimes but not always)
Once the agent has this information they will:
- Update the current registered office to the new address
- Resign the existing director and appoint the new director
- Arrange the transfer of the share from the current shareholder to the new shareholder
- Update the company name (if this is included as part of the service)
What are the disadvantages of shelf companies?
The disadvantages to shelf companies far outweigh the benefits.
As highlighted, the only aspect of shelf companies that could be considered a positive is that they enable a company to convey a sense of longevity. However, not only is this misleading, but it is also something that can be uncovered relatively easily via the Companies House ‘Search the register tool’.
In just a few clicks, any interested party could see the company’s previous information (registered office, director, and shareholder) and conclude that the company was a shelf company.
In this instance, we argue that transparency is the best policy, and that it’s better to be new and honest rather than old (at first sight) and dishonest.
You also need to consider the ease with which a limited company can now be formed. It is legitimately now tricker and longer to take on a shelf company than it is to set up your own company, which can be done in just a few hours. Especially when you consider the process for correctly transferring shares from the ‘placeholder’ shareholder to the new shareholder.
Whilst on the topic of shares, it’s also important to highlight that when you form your own company, you can select a share structure that suits you. Whether you have a sole shareholder who wholly owns the company, two shareholders with an equal split, or multiple shareholders with different allocations – you can select the correct structure at incorporation. You will not have to go through the lengthy process of transferring and adding new shares.
And then you have the company name. As mentioned, shelf companies are formed with generic names that give little away. But just like the registered office and director appointments, even if you do change the company name – the original will always appear on the public register. This could raise questions for any person or business looking to work with you in some capacity. So, why not incorporate your new company with the perfect name straightaway?
Form your company the way you want to, now
Our company formation services take all the hassle out of registering a limited company with Companies House. In just four simple steps you can get your business up and running:
- Pick the company name that’s right for your business
- Choose from our range of company formation packages, with prices starting at just £12.99
- Make payment
- Enter your company information during the quick online application form
Your company will generally be formed in 3 to 6 working hours, depending on the Companies House workload.
Thanks for reading
You should now have a thorough understanding of shelf companies and why, as a service, they could now be considered outdated.
We hope you have found this post helpful. Please leave a comment if you have any questions and we’ll get back to you as soon as possible.