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A Comprehensive Guide to Understanding Shelf Companies

Stefan on 12 June 2023
A Comprehensive Guide to Understanding Shelf Companies

Have you ever heard of a shelf company? Maybe you've come across the terms "aged" or "ready-made" company before. In simple terms, a shelf company is a business entity that has already been registered with the CIPC and SARS but hasn't engaged in any significant business activities. Just like its name suggests, a shelf company sits patiently on a figurative shelf, waiting to be sold to individuals or organizations in search of an established company. In this comprehensive guide, we'll explore the ins and outs of shelf companies, their advantages, and the factors to consider before making a decision.

Why Consider a Shelf Company?

The primary motivation behind purchasing a shelf company is to acquire an already registered business with an existing history. This can bring several advantages, including:

  1. Perception: An aged company tends to be viewed as more reputable and trustworthy by clients, lenders, or business partners due to its longer history.
  2. Contract Bidding: Certain contracts or business opportunities necessitate a minimum number of years in operation. By purchasing a shelf company, you can fulfill these requirements.
  3. Enhancing Credibility: Having an older company can enhance the credibility and market presence of a new business, giving it a head start.

Understanding the Risks

While shelf companies offer various advantages, it's crucial to approach the process with caution. Before making a purchase, it's important to thoroughly research and evaluate the company's history, financial records, legal compliance, and any potential liabilities. Remember that acquiring a shelf company means taking responsibility for its overdue CIPC annual returns, SARS tax returns, and potentially a negative public reputation. Due diligence is key.

The Process of Buying a Shelf Company

If you decide to proceed with purchasing a shelf company, here's a step-by-step overview of the process:

  1. Company Name Change: If you wish to change the company's name, you'll need to reserve a new name through the CIPC department and formally apply for a name change. This typically takes around 5 working days.
  2. Directorship Amendment: Next, you'll need to add yourself as a director and remove the current directors. This requires submitting a COR 39 document along with ID copies of the new and old directors. The directorship amendment process can take up to 15 working days to complete.
  3. Share Certificates: The final and most crucial step is to cancel the company's current shareholding and appoint new shareholders. This involves creating a new share register and issuing new share certificates.

Buying a Shelf Company vs. Registering a New (Pty) Ltd Company

While purchasing a shelf company offers certain advantages, there are also compelling reasons to consider registering a new (Pty) Ltd company:

  1. Customization: When you register a new company, you have the freedom to tailor it to your specific requirements from the beginning. You can choose the company name and appoint your company's directors right from the start.
  2. Clean History: A shelf company may come with a pre-existing history, including past liabilities, legal issues, or financial obligations. By registering a new company, you begin with a clean slate, free from potential complications or undesirable associations.
  3. Active Operations: Shelf companies are typically dormant entities without any operational history. Registering a new company allows you to build your business from the ground up, establishing your own track record and actively shaping its direction and reputation.
  4. Costs: Registering a new company is generally more cost-effective than buying a shelf company and paying to update all its details.

Ultimately, whether you choose a shelf company or register a new one, it's essential to weigh the pros and cons and make an informed decision that aligns with your goals.

In conclusion, understanding the concept of shelf companies and their implications can empower you to make the right choice for your business journey. By carefully evaluating the advantages, risks, and alternatives, you can navigate the realm of shelf companies with confidence. Good luck on your entrepreneurial path!