Thursday, December 27, 2007

Is A Shelf Corporation A Good Business Move?

By Robert Bain

You have likely heard about shelf corporations being the way to go if you want to hurry up the process for obtaining corporate credit. In many cases this is going to work well for you because it shows the lender that you have been established instead of just starting out. Shelf corporations are legal but they aren't always the answer to your corporate credit situation. Make sure you are aware of the pros and cons of shelf corporations before you move forward.

You have to understand corporate credit from the lenders point of view. They have seen more than have of all businesses fail and that often means they lose the money they have loaned to businesses. To help reduce the risk of such loss to the lender, they have to calculate the rate of liability. The longer your business has been open, the lower the risk of failing is. There are other factors to be considered though before they will approve your request and offer you a decent interest rate.

Consumers also find you to be more appealing when you have some longevity behind you. Consumers are becoming more interested in finding out how long a business has been in place before they make a purchase from it. If they see you have just started out they may buy what they want from someone else. However, if the purchase of a shelf corporation makes it appear older than they will assume your business has been doing well.

Depending on what type of business you operate, you may be attempting to secure lucrative deals with other businesses. They are going to be more willing to engage in a large order with you or even a long term contract if they think you are going to be around for a while. The amount of time you have been in business may directly affect their decision.

How honest is it to invest in a shelf corporation? Aren't you misleading lenders, consumers, and other businesses when you use this to promote your new business? There are plenty of ethical concerns with shelf corporations that individuals struggle with. While they are legal, many people aren't sure that they are ethical and they want no part of the process. You will also find those that say a shelf corporation is just another strategy for the benefit of your business.

There are plenty of factors you need to consider if you heading down the road towards a shelf corporation. Make sure it has a clean record with consumers as you don't want to be connected with complaints that have been filed against a business name. If it is a legitimate shelf corporation that has never been used this shouldn't be an issue, but make sure you look at it as well.

Take a good look at the prices of shelf corporations. Don't bother with it if you are going to have to invest capital that you have set aside for other purposes including advertising. Some people are under the understanding that a shelf corporation offers significant tax shelters and benefits. This is not the case at all so don't think you can recoup that money when you file at the end of the year.

Only you can decide if a shelf corporation is going to be right for you or not. Make sure you take the time to consider both sides of the issue. You also need to think about the cost involved. A shelf corporation isn't always cheap but it can lead to more sales for your business. Your personal opinion about the process is going to influence your decision as well.

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