Beware: Self Companies or Corporations Are Not What They Used To Be

A Shelf Company Is Not What You Think

At Kahane Law Office in Calgary, Alberta we continue to get requests for a shelf company. Many people do not understand what a shelf company is or why shelf companies used to be sought after. The following are the basics of what shelf companies (or shelf corporations) were and what they mean today.

What Is A Shelf Company?

A “shelf company” is a business corporation that is incorporated by a law firm (or other service provider) and kept current (meaning that all annual returns are filed with the government to keep it in good standing and all resolutions are up to date and kept in the minute book). The company is “kept on the shelf” in a current state ready to be transferred to a client in the future.

Does Kahane Law Office Create Shelf Companies?

No, it is our firm policy not to create and maintain shelf companies. There are many reasons for this, which will be discussed below. In fact, most law firms in Alberta do not continually create and maintain shelf companies. This is a trend in law firm practice that is noteworthy to discuss. New realities in the legal world changed the need for a shelf corporation.

Why Were Shelf Corporations Used In The Past?

Prior to the introduction of electronic corporate registration in Alberta, as well as the other provinces and federally incorporated companies, the process of incorporation and obtaining a business number from the CRA was slow. Having a shelf corporation sometimes provided an advantage to a client who needed a speedy incorporation in a business transaction. Since the corporation was ready to go on the shelf, if a client needed a corporation immediately for tax or business acquisition purposes, the company was set up and ready.

Why Aren’t Shelf Corporations Needed Anymore?

With the advent of electronic registration, companies can be incorporated now very quickly. As a result it is not the general practice of law firms to maintain a bank of companies to be used for instant distribution. Maintaining these companies is expensive (as annual returns have to be filed and resolutions created to keep the company in good standing) and the benefits of having a shelf company do not outweigh the costs.

Also, there are many misconceptions that clients sometimes have about a shelf company. It is not the case that having an aged company will necessarily get you more favourable terms in a bank financing or trade credit. Banks, and other potential creditors will look at your business history in determining your credit worthiness, more than just the date that your company was incorporated on. Also there is no evidence that having an older company increases your standing in the business community if you have no operating history. These views of shelf companies no longer hold true in business or law.

What Risks Exist In Using A Shelf Company

In addition to a lack of general benefit there are also risks and drawbacks to purchasing a shelf company:

• The costs are generally higher to compensate for the annual filing fees that the company has incurred to maintain its standing;
• Name changes and originating director changes can add additional costs;
• If a business number was issued and tax returns have been un-filed potential tax penalties from the CRA could incur;
• If you purchase a “shelf company” from an untrusted source you can’t be sure that the company never conducted business. As a result, there could be liabilities originating from employment, tax or corporate statutes that you are unaware of. There also could be litigation that you don’t know.

What Kind OF Company Do I Need?

What kind of company can be used if shelf companies are not the way to go? If you need a corporation, you can get a brand new company in the same time or less and for less money than a shelf company. Our incorporation lawyers are able to meet your needs for getting you started on the right foot. Are you a business start up? Then our business start up lawyers can get you going with a low flat rate incorporation package.

Want To Lean More About Shelf Companies From A Lawyer in Calgary, Alberta

The incorporation lawyers at Kahane Law Office can help with your business incorporation legal needs. We can further explain the advantages and disadvantages of using an existing company or shelf company for future business. Contact us today to speak with one of our corporate and business lawyers who can help you to incorporate correctly and get you everything you need, legally, to ensure your business is a success. We can be reached toll-free at 1-877-225-8817 (or 403-225-8810 locally in Calgary, Alberta), or email us directly here.