Shelf companies are another name for ready-made corporations. In a sense, as the name implies, it has been “put on the shelf,” i.e., it is not in use. Except for making annual tax payments to remain a registered firm, which is required by Latvian law. In Latvia, a shelf company is a legal entity that has been formed but has never done business and is usually VAT registered. People prefer ready-made companies for a variety of reasons and benefits. The following are some of the advantages of ready-made companies:
The process of forming a company takes time, but because a shelf company has already been registered with the Latvian Company Registry, the new owner can bypass this stage and focus on the paperwork required to transfer ownership. As a result, the new owner spends less time registering the business. This streamlined procedure is a significant benefit. Many investors are hesitant to establish a business because they are intimidated by the lengthy procedures and even the task of locating a suitable business name. This option is taken care of when the corporate identity can be built around an existing name that is already given to a shelf firm, saving time.
Even if it is not employed for business purposes, a company that has been incorporated gains a lifespan. This is advantageous because some potential clients or business partners prefer to work with established companies. People usually gravitate toward older businesses because they assume they’ve been around long enough to know their onions well.
Shelf businesses are thought to be more trustworthy. Investors would rather go for this than start from scratch because new clients or much larger and well-established businesses that want to partner with the company would rather engage with a legitimate and credible company. This, too, is a bonus when it comes to advertising to customers.
The fact that shelf companies have no economic activity means that they have no debts or negative credit. It is a plausible benefit to the corporation’s overall credibility. It facilitates business transactions. There are no snags, no financial instability, simply a free highway for a fun business trip.
Often, the corporation will not just be registered, but also have a Latvian bank account and a legally registered address. Having a bank account allows you to start doing business right away. This means that as soon as the new owner starts a business, the shelf company can enter into new agreements.
In terms of credit and financial opportunities, shelf businesses have specific benefits. An older company will have more credibility in the eyes of banks and other financial organizations, allowing it to obtain bank loans and other forms of credit without fear of rejection. In the event of bank loans, investors should be aware that, in addition to the company’s business registration certificate, banks will also need other financial documents. Even if they are legitimately retained by examining annual tax submissions, a shelf corporation that has not been used for commerce will not have a meaningful transactional and economic history.
Shelf firms that have done business in the past and hence have a financial and tax history should be avoided at all costs. Third-party shelf company sellers will occasionally offer for sale companies that have been active on the market for a long time and have engaged in a variety of commercial activities. While buying a firm that has already done business in the industry an investor wants to enter may be a viable alternative, it is important to carefully analyze these options and seek help to prevent undesired corporate liabilities.