Shelf company in Saudi Arabia is a legitimate corporation established for the purpose to sell after some time. It is helpful for investors or business developers to start their business without delay by purchasing a shelf company showing an old entity for some purposes. In this article we have covered important aspects like what is shelf company, difference between shell and shelf company, features, benefits, how to acquire shelf company and amendments in it.
What is a Shelf Company in Saudi Arabia?
A shelf company is a pre-registered legal company which has no assets or liabilities and exists without conducting any business in the past. It is formed by all legal procedures with the sole purpose of being sold in future. As its name indicates it sits on a metaphorical shelf, waiting for someone to buy it.
A shelf company is known by various names like an aged company, shelf corporation, ready-made company, or blank check company. All these companies or corporations which are legally-registered with due process of their establishment but have no activity. The owner of a Shelf company holds it until a purchaser is found. When a purchaser buys it the ownership of the company transfers from the seller to the purchaser, who then commences trading activity under the company name. As Cambridge Dictionaries defines a shelf company: “A company that has been officially created so that it can be sold to someone who does not want to have to create a company themselves.” Let’s differentiate a shelf company from a shell company below.
Difference Between a Shell Company and a Shelf Company
There is a lot of confusion, misunderstanding and misconception between a shelf company and a shell company since the Panama Papers were leaked in the media on April 3, 2016. It was an unprecedented leak of 11.5m files from Mossack Fonseca’s database, the world’s fourth biggest offshore law firm. The Panama Papers exposed all rich people including celebrities, politicians, businessmen, etc. about the tax evasion, corruption, money laundering by the accused and their alleged illegal entities offshore. So, let’s know what is the difference between a shell company and a shelf company.
Shell company – It is a company without active business operations or significant assets. These types of companies are not all necessarily illegal, but sometimes they are used illegitimately, such as to disguise business ownership from law enforcement or the public. And, so we can say that Shell companies are legal entities that exist on paper only but have no physical presence, no independent operations, significant assets, ongoing business activities, or employees.
Shelf company – It is also known as “shelf corporation” or “aged company” in nomenclature. It is created with legal procedures to keep it inactive for months or years. It has inactive shareholders, directors, and secretaries and is left dormant for a longer period to age on the shelf. The purpose of shelf company creation is to sell it later on to a person or group of persons who wish to start a company without going through all the procedures of creating a new one.
Highlights of Shelf Company in Saudi Arabia
|Shelf company’s legal entities||1. Private limited liabilities company,2. Public limited liability company|
|Features of a shelf company||It has company name, registered address, corporate bank account, articles of association, directors, and tax identification number (+ VAT number)|
|Benefits of acquiring a shelf company||It takes a few days to purchase it.It has simple acquisition formalities.It has multiple uses. It has possibilities of entering partnership with local companies.It has possibility to incorporate foreign business’s history in it.|
|Can new directors be appointed||Yes, new directors can be appointed|
|Is increased capital allowed in it||Yes, allowed|
|Is a certificate of no commercial activities given to the buyer?||No|
|Can the object of activity be modified?||Yes, buyer can modify the object of activity|
|Who are participants in purchase procedures?||Buyer or his/her local representative and seller of shelf company|
|What is the normal cost of a shelf company?||The cost of shelf company depends on the age of company and amendments to be made in it.|
Main Features of Saudi Shelf Company
Through the above content you know what a shelf company is. The shelf company in Saudi Arabia is one which is already registered and can be purchased by a buyer. The main features of a shelf company in Saudi Arabia are that it is sold and bought with the following features:
(i) A shelf company is sold with a trading name, essential for doing a business in Saudi Arabia.
(ii) It has a registered address, mandatory for a local company to operate from.
(iii) Legal documents – Memorandum and Articles of Association.
(iv) It has shareholders and directors as per the Company Law of Saudi Arabia
(v) It has a corporate bank account mandatory for running business.
(vi) It has a tax identification number for paying taxes to the government.
But recent changes in the Saudi Arabia law for company incorporation introduced the value added tax (VAT) for operating a company that is why some Shelf companies may come with VAT numbers. The VAT number for a company must be obtained from the Tax Authority in Saudi Arabia.
Benefits of Acquiring a Shelf Company Over a New Company
The most important advantage of acquiring a shelf company over registering a new company is that the buyer has the option to choose between the available companies of different ages. The benefit of acquiring a shelf company can impact the possibility of accessing financial activities with the bank of Saudi Arabia without any delay and following new documentation. Buying a readymade company to start a business in Saudi Arabia helps the new owner to generate increased confidence among potential clients as well as business partners.
That is why business men or foreign investors buy a shelf company instead of establishing a new company in Saudi Arabia. Thus buyers purchase it because of:
- They want to save their time and avoid red tapism during new company incorporation.
- It helps in bidding on contracts just after purchasing as there may be some requirements of specified time of age of the company to bid on any contract.
- As some investors or business startups in Saudi Arabia want to sign a deal or contract with someone for which they need a company number quickly.
- As in other countries too a businessman buys a readymade company if they need a VAT number immediately to import some goods.
- Buying a shelf company also helps in attracting investors or consumers by showing they are doing business from how long the age of the company.
- It helps in accessing loans by fulfilling the age requirements of the company.
However, all these benefits as given here are no longer credible as many business experts say. Because the time taking process in incorporating a new company was the problem in older times as it would take months to set up a new business entity in Saudi Arabia. But now the process and time requirement is simplified to scale up the atmosphere for foreign investment in the Kingdom.
How to Acquire a Shelf Company in Saudi Arabia?
The process of buying a Saudi shelf company is not so complicated. And anyone who wants to purchase an aged company should do the following.
- They should search for legal service providers who either have a shelf company or knowledge about it to be sold.
- They should select among the available entities which is fit for their needs and then contact the provider i.e. seller for the availability of the company and negotiate the purchasing amount.
- Fix a time to sign the sale-purchase deed and all legal paper works required.
- Take over the company and make the necessary changes for running the business and record them legally with the Trade Registrar of Saudi Arabia.
Our legal consultant can assist with necessary amendments to be made after purchasing the shelf company and registering with all changes with legal agencies of Saudi Arabia.
Amendments After Buying a Shelf Company in Saudi Arabia
The most important changes and amendments needed to be done after purchasing a shelf company are the name of the shareholders and directors of the company. After that company address and name can also be changed as per need. If the trading name of the company is to be changed it needs a new bank account under the changed name.These changes need the amendments in the company’s statutory documents and their reporting to the Company Registrar of Saudi Arabia.
Acquiring a shelf company instead of registering a new company has its merit and demerit which is given in the content above. So, clients are not in a hurry due to their own requirements, they can also go for establishing a new company fresh with minimum time and legal procedure. In both cases Fahad Al-tamimi legal experts are available to assist the investors.
FAQs Related to Shelf Company in Saudi Arabia
Q. What is a shelf company?
Ans. A shelf company is a corporate entity established by a provider who holds the company until a buyer is found. It is registered with the CIPC (Companies and Intellectual Property Commission) with no previous trading.
Q. How do I buy off the shelf company?
Ans. To buy a shelf company, a purchaser will need to buy all of the share capital in the company so that they own the company as a whole. For this, a legal transfer instrument i.e. a stock transfer form will need to be fully executed by the transferor to the buyer with the help of a legal consultant.
Q. Are shelf corporations legal?Ans. A shelf company is a legal entity created for tactical purposes, generally to sell in future.