Call us
February 10, 2009
Published on Trustmakers.com and Ruschlaw.com.
Dear Valued Reader,
I am frequently asked about the use of offshore “shelf” corporations in international business. Some claim they are useless, while others market them as the greatest invention since the numbered bank account. I would like to take this opportunity to put my two cents worth in to the debate.
Bottom Line: I believe offshore shelf corporations can be helpful if you are marketing a business because they improve your image. Since this can be accomplished without backdating any documents, or doing anything improper, I support shelf companies.
First, what is a shelf company? It is a corporation formed months or years ago that has been sitting on the incorporator’s shelf, unused. Because it has no history of operation, no bank account, and no creditors, there should be no risk in purchasing a shelf company.
The legitimate benefits of an offshore shelf corporation are:
Of course, the abuses of shelf companies are well documented. Many purchase these entities and then ask the director to sign back dated documents. While you can find some less scrupulous directors who are willing to provide this service, such a practice is obviously improper.
Because of the nature of the industry, it is difficult to find a shelf company older than about 14 months. This is because these companies are usually formed by the incorporator on behalf of a particular client. The client does not pay the incorporation fee, so the entity sits on the shelf to be sold to someone else. After 12 months, the annual dues must be paid, which the incorporator is not willing to do. Around the 14th to 16th month, the company is closed by the government registrar.
The only significant exception that I have found is in Switzerland. There, it is possible to purchase a company formed many years ago, revive that company in the government registry, let it sit on the shelf for about 2 years to eliminate any potential creditors and then file for a tax clearance. The result is a clean shell with the original incorporation date attached.
As you can imagine, these Swiss companies can be very expensive. An entity formed in the 1970s to 1980s can cost $120,000, one formed in the 1960s might cost $160,000, and one formed in the 1920s could sell at auction for as high as $500,000. Since these shells are typically used as holding or parent companies for offshore banks, hedge funds, ForEx brokerage firms, or other investment management businesses, there are usually plenty of buyers willing to pay the high cost.
I hope you have found this information helpful. There are several valid uses of offshore shelf companies…just be careful where you buy and how you use them.
Best regards,
Chris Rusch
ABOUT THE AUTHOR:
Chris Rusch is a California licensed attorney who has represented clients before the IRS in many states. His practice is focused on international taxation and preparation, foreign corporate formations, and resolving complex tax controversies.
Published on Trustmakers.com and Ruschlaw.com.
Dear Valued Reader,
I am frequently asked about the use of offshore “shelf” corporations in international business. Some claim they are useless, while others market them as the greatest invention since the numbered bank account. I would like to take this opportunity to put my two cents worth in to the debate.
Bottom Line: I believe offshore shelf corporations can be helpful if you are marketing a business because they improve your image. Since this can be accomplished without backdating any documents, or doing anything improper, I support shelf companies.
First, what is a shelf company? It is a corporation formed months or years ago that has been sitting on the incorporator’s shelf, unused. Because it has no history of operation, no bank account, and no creditors, there should be no risk in purchasing a shelf company.
The legitimate benefits of an offshore shelf corporation are:
- The company is ready to use off the shelf. You do not need to wait for the company to be formed, the name to be approved, or for the directors to be assigned.
- You can market the name and age of the shelf company. For example, your letterhead and marketing materials can refer to “International Marketing Services (Panama), S.A., Established 2006,” if you bought a corporation by that name formed in Panama in October of 2006.
Of course, the abuses of shelf companies are well documented. Many purchase these entities and then ask the director to sign back dated documents. While you can find some less scrupulous directors who are willing to provide this service, such a practice is obviously improper.
Because of the nature of the industry, it is difficult to find a shelf company older than about 14 months. This is because these companies are usually formed by the incorporator on behalf of a particular client. The client does not pay the incorporation fee, so the entity sits on the shelf to be sold to someone else. After 12 months, the annual dues must be paid, which the incorporator is not willing to do. Around the 14th to 16th month, the company is closed by the government registrar.
The only significant exception that I have found is in Switzerland. There, it is possible to purchase a company formed many years ago, revive that company in the government registry, let it sit on the shelf for about 2 years to eliminate any potential creditors and then file for a tax clearance. The result is a clean shell with the original incorporation date attached.
As you can imagine, these Swiss companies can be very expensive. An entity formed in the 1970s to 1980s can cost $120,000, one formed in the 1960s might cost $160,000, and one formed in the 1920s could sell at auction for as high as $500,000. Since these shells are typically used as holding or parent companies for offshore banks, hedge funds, ForEx brokerage firms, or other investment management businesses, there are usually plenty of buyers willing to pay the high cost.
I hope you have found this information helpful. There are several valid uses of offshore shelf companies…just be careful where you buy and how you use them.
Best regards,
Chris Rusch
ABOUT THE AUTHOR:
Chris Rusch is a California licensed attorney who has represented clients before the IRS in many states. His practice is focused on international taxation and preparation, foreign corporate formations, and resolving complex tax controversies.