We are often asked about a so-called shell company, so let’s take a look at what it actually is.
What is the difference between a shell company and a shelf company?
Just like a shelf company, a shell company only has a so-called shell. The shell company has ceased its business activities and the seller of the company is only selling this legal shell in the form of an existing company. The advantage is that you no longer have to set up a new company.
Be careful: legacy burdens
However, unlike the shelf company, the shell company has already carried out transactions. This means that the company may still have inherited liabilities that you may not even be aware of at present, e.g. warranty claims by old customers or creditors who are only now asserting their claims against the company.
Shell company:
What exactly is it?
Caution: New economic formation
According to current legislation and case law, the transfer of a company together with the commencement of another business activity and the replacement of the managing director constitutes a so-called “economic re-establishment”. In this case, the share capital must be increased to the original value. This means that the seller must make the company available with the full share capital. This means that he must demand at least the amount of the share capital from the buyer as the selling price. This means that a shell company no longer has any advantage over a shelf company.
Even if you take over a company without this new formation, there is still the risk that the share capital will have to be paid up, e.g. in the event of insolvency, as it is actually legally a new economic formation.
Better creditworthiness?
Some customers hope that by purchasing a shell company they will be able to benefit from the company’s possibly good credit rating, e.g. for a bank loan. However, this will probably not work, as the bank will also see that there are completely new circumstances: new business area, new managing director, new shareholder. And the term “new economic formation” in the notarized purchase agreement.
The term shell company is often confused with the shelf company, as the shelf company is also only a so-called shell. The main difference, however, is that the shelf company has not yet carried out any business activities. It is therefore completely virgin. This is also bindingly promised to the buyer in the notarized contract.
As a result
We distinguish between shell companies and shelf companies, as described above. The clear distinction between these two terms is becoming increasingly accepted. And that is why we only sell shelf companies. You know what you are getting.