A shelf corporation is a legal entity which can be a corporation or an LLC, available for sale to a new owner. These companies are ready to start the business except to obtain an Employer Identification Number and open a bank account. Purchasing an existing business indeed provides immediate returns and represents less risk compared to buying a start-up. Shelf companies are often referred to as a Shelf corporation or Shelf LLC. Acquiring an older and existing entity compared to a freshly established one can provide you many benefits. Limited liability companies receive a more favorable tax treatment because these are the pass-through entities and can be the attractive acquisition targets.
What is an LLC?
LLC or Limited Liability Company is the company where the members of the corporate structure do not hold the personal liability for the obligations and debt. Articles of organizations are required to file within the state to form an LLC.
Notably, an LLC combines the features of partnership, corporation, and sole proprietorship. A Limited Liability Company offers limited liability like a corporation and flexibility in tax structure like sole proprietorship or partnership. The laws of Limited Liability Companies vary from state to state. An LLC requires the documents to be filed with the authorized state’s Secretary.
What are the features of a Limited Liability company?
- Ease in Tax- LLC provides its members an option to tax them either as a sole proprietorship or as a corporation, if not stated. Thus, in this way, the members can decide the most profitable structure.
- Limited Liability- This is indeed the most crucial feature of an LLC, where its members are not responsible for the legal faults and misdeeds of the other members.
- Flexible nature- It gives its members a choice to decide whether or not to continue the same company in case of death of anybody, unlike corporations.
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How can you set up an LLC?
- Select a suitable business name available in the state.
- According to the norms of the state, file the articles of the organization and pay the filing fee.
- Create an Operating agreement that will include the rights and liabilities of all the members of the limited liability company. However, this step is not mandatory but advisable.
- Now, publish a notice of the intention to form the limited liability company in the newspaper for a few weeks. Again, this step is probably not required in all the states of the U.S.
- The official LLC has formed after all the steps mentioned above. Next, it is crucial to obtain all the required permits and licenses for operating the business.
What are the advantages of setting up an LLC?
- Compared to any other corporate structure, an LLC offers very few regulations.
- Comparatively, there is always less record-keeping and less paperwork in an LLC.
- Even a single person can start a limited liability company.
- The members of a limited liability company are protected from the company’s obligations, depending upon the laws of the state.
- In the case of an LLC, double taxation is not required. The owners of the company can only file their tax returns.
- Here, the members have the flexibility to decide how they are to be taxed.
Explore about how to register a business in the U.S?
How can you buy a Shelf LLC in five simple steps?
1. Choosing a particular LLC to purchase-The first step is to identify a specific LLC for purchasing. After that, you must consider few things, such as who will operate the LLC, how it will be financed, how it will affect the personal finances, and what will be the company’s long-term viability? You are also required to contact the LLC owners and determine if they are willing to sell.
2. Building the framework for the deal- You are required to establish the framework for the deal, like if you are interested in buying the entire LLC or just one of its portions of equity. The terms of deals are written in a document called, memorandum of understanding or term sheet, and the term sheet contains:
- The price for buying the LLC.
- The duration of the due diligence period.
- The deal’s structure.
- The method of payment to pay the price.
- The date of closing.
- The right to vote after closing.
3. Conducting due diligence- During the due diligence period, the buyer, buyer’s accountants, and buyer’s
The attorney will then verify the documents to ensure no liens are against the company. Also, the accountant needs to review all the tax returns, bank accounts, and financial statements of the LLC.
4. Drafting the purchase agreement- This agreement is a formal document will is the final embodiment of the sale, and it can be of many different forms depending on the structure of purchase. For instance, if you are purchasing only a portion of equity, then the agreement is called a membership interest purchase agreement.
The agreement contains all the terms from the memorandum of understanding and different legal provisions to protect both parties.
5. Closing– It is an event where the parties sign the purchase agreement, and the funds are exchanged. You can consider it as an end of the transaction if there are no post-closing contingencies.
Notably, the post-closing contingencies can be the filing documents with the federal government or paying the taxes on the sale.
What are the benefits of a Shelf LLC?
- You can have an instantly available Limited Liability Company.
- You can own an LLC immediately with a filing history.
- It might be helping when applying for financing and contracts.
- It shows the longevity of the company filing.
There are several benefits in setting up the LLC using a shelf company. The most crucial part is to buy the entity via a reputable company, and you are ready to use an LLC with all the mentioned advantages. The shelf LLC can help the potential buyers to access the commercial credits immediately, and it also saves a lot of time by skipping the paperwork.
Also Read – When should you buy a Shelf Corporation?