What is a Shelf Company? Meaning. Are shelf companies legal?

Meaning

A Shelf Company/corporation is a company, which is a duly registered/incorporated company as defined under the Companies Act, 2013 (India) or under any other previous company law. In respect of which the company has already received the Certificate of Incorporation, but the company has not started its commercial operation.

The company has shareholders, directors only for name sake or to comply with the legal requirements as provided under the Act.

These kinds of companies are generally incorporated with an intention by the persons incorporating such companies to sell it off to a client who needs them for some purpose.

Definition

The Companies Act, 2013 does not define the term 'Shelf Company'.

Advantages

One of the most important advantages of buying a shelf company is 'Saving of Time', which is involved in the setting up or incorporation of a new company.

There may also be taxation angle to it, if under tax law certain period needs to be passed to enjoy certain benefits or exemption under the law.

Generally, the corporate law firms and accounting firms are engaged in such practices.

Formalities after the buying

Once the client buys the Shelf Company, the directors and shareholders needs to be changed as per the choice of client, which requires some less time consuming filings with the Registrar of Companies.

*These Shelf Company sell practices are generally prevalent in countries like UK, USA, etc, but in India such things are very rare to find, though there is no illegality in it or the Indian law does not prevent such practices.