Should I buy a shelf company?

There are several misconceptions about the advantages of buying a shelf company rather than registering a new company. Since we regularly receive the same questions in this regard we provide here, for wider cognisance, some of these questions and the answers to them, together with some information about the time frames and procedures involved in registering a new company.

1. Is it cheaper to buy a shelf company than to register a new company?

The price paid when buying a shelf company may well be less than the fee required to register a new company. What many people do not bear in mind, though, is that additional costs have to be incurred to change the directors of the shelf company, to reserve and register a new name for the company, to change the registered address, etcetera. In the long run these costs work out to be more or less the same as the costs of registering a new company.

2. Can a shelf company start trading immediately?

Before a shelf company can start to do business the directors who will act on behalf of the company must be appointed. At present it takes about two to three months to register the change of directors with the CIPC. A name change takes about three months. In practice these changes are usually accepted if signed minutes of a meeting confirming appointment of the directors can be produced, and also if proof can be provided that the necessary documents have been submitted to the CIPC.

3. Can a bank account be opened immediately for a shelf company?

Only a properly registered director of a company may open a bank account in the name of the company. However, most banks are satisfied if signed minutes of a meeting to appoint the directors of the company, as well as proof of submission of the necessary documents to the CIPC, can be provided. There are, though, still banks which accept only the proper registration documents of the CIPC.

4. Can a shelf company register immediately for Value Added Tax (VAT)?

SARS requires a prospective VAT vendor to have a bank account in the name of the vendor before registration for VAT is approved.

At present the procedure and the time frame to register a new company are as follows:

1. Registration documents: Once all the required information has been collected and submitted together with the required documents to the CIPC, it takes about one day for a new company to be registered. The information to be provided includes, inter alia, the personal particulars of the directors (ID, postal and employment address, occupation), the authorised and issued share capital, year-end date and registered address of the company.

2. Reservation of name: In terms of the new Companies Act a company may be registered without a name. In

this case only a company number is allocated to the company and this number serves as the name of the company until it registers a name. Should, however, the prospective directors of the company choose to register a name at the time of registering the company, the first step is to submit the required name reservation documents to the CIPC. At present it takes about four days from the time that these documents are submitted until the name is approved.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.