Company formation - Shelf companies

Learning Outcomes

This article outlines the meaning, formation, activation, compliance, governance, risks, and tax obligations of shelf companies under SQE1 FLK1, including:

• Definition of shelf companies and key differences from newly incorporated companies
• Separate legal personality and limited liability conferred by incorporation
• Situations where a shelf company is preferable to fresh incorporation
• Acquisition and activation process and required Companies House filings
• Updates to directors, secretaries, registered office, company name, and articles of association
• Statutory register maintenance, including members and people with significant control (PSC)
• Directors’ and officers’ responsibilities and professional advisers’ duties
• Distinction from pre-incorporation contracts and liability under section 51 Companies Act 2006
• Board governance and first-board decisions, including accounting reference dates, bank mandates, and share transfers
• Authority to allot shares, pre-emption rights, and implications of model articles versus Table A
• Due diligence, ethical risks, hidden liabilities, and anti-money laundering (AML) compliance
• Tax registrations and obligations (corporation tax, VAT, PAYE, National Insurance), close company loans, group structures, and annual filing requirements
• Client advisory considerations for compliant and ethical acquisition and activation of shelf companies

SQE1 Syllabus

For SQE1, you are required to understand shelf companies in the context of company formation under FLK1, with a focus on the following syllabus points:

• Definition, characteristics, and legal structure of shelf companies in England and Wales
• Distinction between shelf companies, newly incorporated companies, and pre-incorporation contracts
• Separate legal personality and limited liability in shelf companies
• Activation steps on acquisition: share transfers, appointments and resignations of directors/secretaries, registered office, company name, changes to articles, and filings
• Statutory compliance requirements, updates to Companies House, and maintenance of registers (members, directors, secretaries, PSC)
• First board meeting business and ongoing governance
• Risks, due diligence, and ethical considerations, including anti-money laundering responsibilities
• Understanding the Companies House forms (AP01, TM01, AD01, NM01, AA01, CS01, SH01 etc.), relevant deadlines, and consequences of late or inaccurate filings
• Updating statutory registers, especially the register of people with significant control (PSC), requirements for single-member companies, and recording share transfers/share buybacks
• Tax registrations (corporation tax, VAT, PAYE, National Insurance), including timing and thresholds
• Authority to allot shares, pre-emption rights, adoption of model articles or Table A articles, and consequences for post-acquisition governance
• Ethical risks associated with misrepresenting company history, use of nominee structures, or concealment of ownership/control

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

• What is a shelf company, and how does it differ from a newly incorporated company?
• Which statutory filings must be updated immediately after acquiring a shelf company?
• What are two main legal risks associated with purchasing a shelf company?
• True or false? A shelf company can enter into contracts before any changes are made to its directors or shareholders.
• What is the main ethical concern when using a shelf company to present a misleading company history?
• Which Companies House form is used to change the company’s registered office, and what form is used to change the accounting reference date?
• What is the purpose of the PSC register, and when must it be updated?
• How can using a shelf company avoid liability on pre-incorporation contracts?

Introduction

When a client requires a functioning company at short notice—sometimes for reasons of transactional urgency, contractual requirements, or the need to demonstrate a prior incorporation date—a shelf company provides a ready-made, dormant vehicle, held by formation agents or law firms. Shelf companies facilitate immediate access to corporate personality and enable clients to bypass the incorporation process. However, the process of activating a shelf company carries distinctive legal, compliance, and ethical duties. This article explores the nature of shelf companies, their legal status upon incorporation, and the mandatory steps needed on acquisition and activation to ensure compliance with Companies Act 2006, anti-money laundering regulations, and wider commercial best practice. It sets out required filings and register updates, practical risks—including hidden liabilities and inadequate governance—and highlights the importance of due diligence, transparency, and responsible advice. It concludes with tax and filing obligations, guidance on board governance and initial decisions, and the potential ethical pitfalls associated with misleading use of shelf companies.

What is a Shelf Company?

A shelf company is a company registered—normally with minimal share capital and standard model articles—by a law firm or formation agent for future sale. The company is kept dormant (i.e., it does not trade or carry on business) until acquisition by a purchaser who customises it for their needs. Shelf companies are usually private companies limited by shares, with one or more subscriber shares held by nominee individuals (often employees of the agent). The registered office, directors, and secretary will be those nominated by the agent, with all corporate records and statutory books maintained up to the point of sale.

Key Term: shelf company
A company already incorporated (but not traded) and retained by an agent for future sale, providing an immediate legal entity for a purchaser to take control and activate.

Shelf companies can sometimes also be offered by law stationers and corporate service providers, and may be tailored with a range of incorporation dates to meet a client's requirements. Upon acquisition, the new owner receives the certificate of incorporation, memorandum and articles of association, statutory books, transfer documentation, resignation letters for outgoing officers, and (frequently) a certificate stating that the company has not traded.

Shelf companies differ fundamentally from companies limited by guarantee (rarely the chosen form for shelf companies)—their focus is on immediate operational readiness and flexibility for share transfers, not suitability for charities or non-profits.

Legal Status of Shelf Companies

From the date of incorporation, a shelf company is a body corporate with separate legal personality under Companies Act 2006 (CA 2006, s. 15–16). This confers capacity to own assets, enter into contracts, sue and be sued, and exercise all rights of a registered company, regardless of its dormant status.

Key Term: separate legal personality
The concept that a company exists as a distinct person in law from its shareholders and directors (see Salomon v A Salomon & Co Ltd [1897] AC 22).

Limited liability applies from incorporation—shareholders' liability is limited to the amount unpaid on their shares (if any). The company can bring and defend legal actions and can own its own assets.

Shelf companies are not partnerships, nor do they function as vehicles for pre-incorporation contracts. In pre-incorporation arrangements, any purported contract entered into before a company comes into existence exposes those signing ("promoters") to personal liability under s. 51 CA 2006 until and unless a valid novation or assignment takes place. By contrast, shelf companies, already registered, can enter into contracts immediately; the risk of liability is avoided, as the company is already a legal person.

For public limited companies, the minimum allotted share capital is £50,000 and they must have two directors and a company secretary. Shelf companies will almost always be private companies limited by shares—these require just one director (who must be an individual, not a corporate entity).

The company's registration (certificate of incorporation) is conclusive proof of existence and status (CA 2006, s. 15). All powers and obligations of a company commence on incorporation.

Shelf companies typically have unamended model articles (CA 2006, s. 18–20) or, if formed before October 2009, Table A articles. Table A companies may retain older governance provisions—such as 21 days’ notice for general meetings and restrictions on allotting shares—so checking the articles on acquisition is essential.

Why Use a Shelf Company?

Shelf companies are acquired for several key reasons:

• Speed: Immediate availability, avoiding delays in application to Companies House for new incorporation.
• Incorporation history: The company exhibits an earlier incorporation date, which in tenders or contracts may be advantageous if a minimum age is required.
• Convenience: Avoiding the need to go through the incorporation process, including drafting the memorandum and articles, registration and share allocation.
• Liability avoidance: Since the company already exists, contracts can be signed immediately by authorised directors, removing risk under s. 51 CA 2006.

Same-day incorporation is now available online, reducing some of the historic urgency for shelf companies. Nevertheless, shelf companies are often preferred where an existing company is needed at very short notice, or where a specific incorporation date is required for business reasons.

A shelf company can contract immediately because it exists as a body corporate upon incorporation. However, delay in updating the register of directors or appointing appropriate signatories may create practical or legal difficulties in demonstrating authority to enter contracts validly.

Most shelf companies adopt the model articles, granting broad managerial powers to the directors (MA 3). If the company has Table A articles (older companies), rules on decisions, notice, and share authority may differ significantly—requiring prompt review and amendment if unsuitable.

Acquiring and Activating a Shelf Company

Following purchase, activation ("customisation") of a shelf company requires a series of legal and administrative steps. Activation brings the company into the client’s control, confers managerial authority, and ensures compliance with CA 2006, registration requirements, and best practice.

Key Activation Steps

• Transfer of Shares: The agent's nominees execute a stock transfer form (STF) to transfer all subscriber shares to the purchaser. The register of members must be updated and a new share certificate issued. Stamp duty is payable if the shares are transferred for consideration over £1,000.
• Appointment and Resignation of Directors/Secretary: Nominee directors and secretary (if any) resign; new directors and secretary are appointed as appropriate. Companies House must be notified of appointments (form AP01) and resignations (form TM01) within 14 days.
• Change of Registered Office: If the company’s registered office is to be changed, board resolution is passed and form AD01 filed at Companies House.
• Change of Company Name: For rebranding or commercial reasons, the company’s name may be changed by special resolution and filed via form NM01 with Companies House, together with a copy of the resolution and the fee.
• Amendment of Articles: If bespoke governance is needed, articles may be changed by special resolution and filed with Companies House within 15 days using amended articles and copy of the resolution.

Key Term: activation of a shelf company
The process by which a shelf company is transferred to new ownership, with new directors and officers appointed, registers updated, and the company made ready for trading.

• First Board Meeting: Key decisions are implemented at the first board meeting; these include approving the share transfer, updating the register of members, issuing certificates, appointing bankers, adopting a bank mandate, authorising the use of a trading name, considering insurances, registering for HMRC (tax obligations), and fixing the accounting reference date with form AA01 if the default date (last day of the month of incorporation) is unsuitable.

A board resolution is required for most operational changes. If the company is to remain a single-member company, section 123 CA 2006 requires a statement of single-member status on the register of members—updated if new members join.

In companies with Table A articles, authority to allot shares, notice periods for meetings, and other rules may differ—attention to the company’s structure is necessary.

If shares are to be allotted post-acquisition, directors must ensure they have authority (either under model articles, s. 550 CA 2006, or as supplemented by ordinary resolution for Table A companies), and consider rights of pre-emption under s. 561–567 CA 2006 and articles.

Key Term: articles of association
The document that forms a company’s internal rules and governance framework. It governs decision-making, share issues, and the powers of directors and members.

Key Term: memorandum of association
The document by which the original subscribers declare their intention to form a company. It is required on incorporation and records the founders.

Combination with Business Operations

The company should open a corporate bank account, set up PAYE if hiring employees, register for VAT if turnover will exceed the threshold (£85,000), and arrange all necessary insurance policies.

Board decisions can be made by majority vote at a valid, quorate meeting or by unanimous written resolution (model articles MA 8). All decisions should be minuted and records retained for at least ten years.

Where the shelf company is to be used for complex transactions (e.g., as a parent or subsidiary in a group structure), further steps may be needed—such as registering charges at Companies House (form MR01), updating group shareholdings, and considering group relief provisions for corporation tax.

Key Term: board meeting
A formal gathering of directors where company decisions (board resolutions) are made.

Key Term: general meeting
A meeting of shareholders (members) where ordinary or special resolutions are passed.

Worked Example 1.1

A client needs to sign a contract urgently and cannot wait for a new company to be incorporated. They buy a shelf company from an agent. What must they do before using the company for business?

Answer:
The client must ensure the shares are transferred (using a stock transfer form), new directors (at least one individual) are appointed and any nominee directors resign, Companies House is notified of the changes, statutory registers are updated (members, directors, PSC), and the company is properly empowered to enter contracts.

First Board Meeting and Corporate Housekeeping

A well-documented first board meeting sets up essential governance and regulatory compliance. Typical first board business includes:

• Appointing a chairperson (MA 12), noting the casting vote provisions (MA 13)
• Approving share transfers, updating the register of members, and issuing share certificates
• Authorising bank mandates and opening a company bank account
• Considering the appointment of auditors (private companies may be exempt as small companies under s. 477 CA 2006; mandatory for public companies)
• Fixing (or changing) the accounting reference date (CA 2006 s. 391–392) and filing form AA01 if required
• Considering directors' service contracts (employment contracts), with shareholder approval required for contracts exceeding two years (CA 2006 s. 188)
• Passing resolutions to change the registered office (AD01) and company name (NM01), updating company stationery (CA 2006 s. 82 requires correct particulars on letters and order forms)
• Recording single-member company status if applicable (CA 2006 s. 123)

If additional shares are to be issued or transferred, check the articles for any restrictions, the authority of the directors to allot (CA 2006 s. 550–551), and confirm whether statutory or bespoke pre-emption rights apply.

If the company was formed under older legislation, check for restrictions such as an authorised share capital clause, which may need to be removed by ordinary resolution if the company is to allot more shares.

Worked Example 1.2

A business owner buys a shelf company and discovers after purchase that the company has unpaid late filing penalties. Who is responsible for these penalties?

Answer:
The new owner is responsible for any outstanding liabilities or penalties of the company—even if the liabilities arose before purchase—unless indemnity is expressly negotiated. Due diligence is essential.

Worked Example 1.3

A promoter signed a lease “on behalf of” a company to be formed. To avoid personal liability, they instead purchase a shelf company and sign the lease as its director the next day. Is the promoter personally liable under section 51 CA 2006?

Answer:
No. Section 51 CA 2006 applies only to contracts entered before incorporation. Since a shelf company is already incorporated, any contract entered into by its authorised director binds the company alone.

Statutory Compliance on Acquisition

Activation of a shelf company triggers important statutory obligations for directors and advisers. Failure to comply can result in criminal penalties for the company and every officer in default.

Key Compliance Steps

• Update Companies House: Notify all changes to directors (AP01/AP02), secretaries, registered office (AD01), and company name (NM01) within statutory deadlines (14 days for directors/officers; immediate for registered office and name/change of articles).
• Update Statutory Registers: Retain registers of members, directors, secretaries, and people with significant control (PSC), as well as minutes of board and general meetings. Records must be kept at the company’s registered office or elsewhere notified to Companies House.
• PSC Register: Update the PSC register promptly to show new controllers (>25% shares or voting rights, or who exercise significant influence). If the company opted for central register maintenance, ensure all changes are centrally filed and reflected consistently. Under CA 2006 Pt 21A and s. 81 Small Business, Enterprise and Employment Act 2015, the PSC register is subject to inspection.
• Confirmation Statement: File form CS01 annually within 14 days of the review period, confirming that company details are current and all required information has been filed.
• Annual Accounts: File annual accounts at Companies House within nine months of the end of the accounting reference period (CA 2006 s. 441–442 for private companies; six months for public companies). Directors must prepare accounts and, where relevant, directors’ strategic reports (for large companies).
• Stationery and Disclosure: All business letters, order forms, and websites must carry the company’s registered name, registered office address, and number (CA 2006 s. 82).
• Register Single-Member Status: If, after transfer, the company has only one member, record single-member status under s. 123 CA 2006; update if new members join.

Key Term: confirmation statement
Annual statutory filing (form CS01) confirming the current particulars of the company, including directors, shareholders, PSCs, and share capital.

Key Term: PSC register
Statutory register listing persons with significant control over the company (e.g., >25% shares/voting rights or the right to appoint/remove directors).

If articles are amended (e.g., replacing model articles), file the special resolution and amended articles with Companies House within 15 days (CA 2006 ss. 26, 29–30).

For further share issues, use form SH01 for notification within one month.

Company secretaries are optional for private companies (CA 2006 s. 270), but mandatory for public companies (CA 2006 s. 271).

Worked Example 1.4

A purchaser takes over a shelf company and holds 100% of its shares. The register of PSC still lists the agent’s nominee as PSC. What must be done?

Answer:
The internal PSC register must be updated to reflect the new PSC(s); the change must be delivered to Companies House within the deadline (usually 14 days). The next confirmation statement must also reflect the correct PSC information.

Risks and Due Diligence

Shelf companies present several distinctive risks, requiring thorough due diligence prior to acquisition and activation.

Main Risks

• Hidden Liabilities: Even dormant companies may have accrued late filing penalties, unpaid taxes, previous charges, or contingent liabilities if nominee directors/officers acted pre-sale.
• Non-Compliance: Failure to update register of members, directors, secretary, PSC or to notify Companies House in time exposes both the company and defaulting officers to fines or, in some cases, criminal charges.
• Reputation/Ethics: Clients may attempt to use shelf companies to present a misleading trading history or age, which may be unethical or amount to misrepresentation or fraud in tenders/contracts.
• Unsuitable Constitution: Model articles (or unamended Table A articles, for older companies) may not provide appropriate governance for share transfers, director authority, quorum, or pre-emption rights. Amendments may be required via special resolution.
• Undisclosed Charges: Shelf companies should be free of existing charges on assets, but verify using Companies House register and, for property, Land Registry or other asset registers. Existing charges (e.g., fixed or floating) can restrict borrowing capacity or expose the company to claims.
• Insolvency Proceedings: A winding-up petition or pending court proceedings against the company will become the purchaser's problem post-acquisition.

Due diligence before acquisition should cover:

• Inspection of Companies House filings to confirm officers, registered office, charge history, annual accounts, and confirm no pending strike-off or insolvency actions
• Review of statutory books—the register of members, PSC register, directors, and secretary—to ensure accuracy and identify any anomalies
• Request for a certificate of non-trading from the vendor (formation agent), though this does not absolve liability for undiscovered or undisclosed debts
• Assessment of the company's accounting reference date and check for upcoming accounts or confirmation statement deadlines
• Review of tax status—corporation tax, VAT, PAYE registration—and outstanding liabilities, and confirmation with HMRC where necessary.
• Examination of articles of association, noting whether they are model articles, bespoke, or inherited Table A (pre-Oct 2009), and considering amending as needed for governance flexibility.

Key Term: due diligence
Investigation of company history, liabilities, statutory books, filings, and compliance prior to acquisition or activation.

Worked Example 1.5

You search Companies House for a shelf company and find an unregistered charge instrument lodged within the last 21 days. What should you advise?

Answer:
Advise the client not to acquire the company until the position is clarified or choose another company. An outstanding or recently created charge could bind the company’s assets, and a clean shelf company should be free of encumbrances.

Anti-Money Laundering and Ethical Issues

The ready-made nature of shelf companies makes them attractive not only for legitimate business but also for the concealment of beneficial ownership or unlawful activities. Agents and advisers must comply strictly with anti-money laundering (AML) regulations, including customer due diligence and reporting suspicious transactions under Proceeds of Crime Act 2002 and Money Laundering Regulations 2017.

• Customer Due Diligence (CDD): Verification of identity, beneficial ownership, and source of funds for all clients buying shelf companies.
• Reporting Obligations: Where suspicious activity is identified, a suspicious activity report must be filed. Concealment of control or use of nominee structures to hide real owners may be a criminal offence.
• PSC Transparency: Ensure all PSC information is accurately recorded and updated, including change of ownership/control upon acquisition.

Key Term: anti-money laundering (AML) regulations
Legal requirements to verify client identities, monitor transactions, and report suspicious activity, aiming to prevent financial crime.

Key Term: beneficial owner
The individual who ultimately owns or controls a company, even if acting through nominees or other structures.

Advisers must not collude in any arrangement intended to conceal true control or mislead third parties about trading history, ownership, or company age. If the company is used in circumstances where fraud or deception is intended, both adviser and client may be exposed to criminal and professional sanctions.

Because the PSC register is public (CA 2006 s. 790O), it provides transparency; failure to keep it accurate is a regulatory breach.

Exam Warning

Shelf companies are scrutinised under AML obligations. Any arrangement to misrepresent control, conceal ownership, or facilitate unlawful activity risks criminal prosecution, regulatory sanctions, and civil liability.

Worked Example 1.6

A client insists on keeping the nominee director and requests no PSC disclosure despite holding 100% of shares. What should you do?

Answer:
The adviser must insist on accurate PSC disclosure and full compliance with statutory obligations. Failure to comply risks both criminal liability and possible regulatory action. If the client refuses, decline to act and consider whether a suspicious activity report is required.

Tax and Other Practical Considerations

Activation of a shelf company triggers tax registration and compliance obligations as the company becomes an active trading entity.

• Corporation Tax: Register promptly with HMRC, typically within three months of commencing trading. Companies pay corporation tax on UK profits and, if resident, worldwide profits.
• VAT: Register for VAT if annual taxable supplies will exceed the threshold (£85,000). If below the threshold, voluntary registration may be considered if advantageous (for example, to reclaim input VAT).
• PAYE and National Insurance: Register as an employer if hiring staff and pay wage taxes and employer National Insurance contributions.
• Annual Accounts: Directors must prepare and file accounts annually, even for dormant or small companies (CA 2006 s. 394–441). Private companies file accounts within nine months of end of accounting reference period; public companies within six months.
• Confirmation Statement: File form CS01 annually as described above.
• Strategic/Directors’ Reports: Required for medium/large companies (turnover >£10 million or >50 employees). For large private companies, Wates Corporate Governance Principles may apply (see Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 Pt 8 Sch. 7).

Loans by close companies (companies controlled by five or fewer participators, or where directors control the voting) to shareholders are subject to special rules—company pays an additional charge (currently 33.75%) on “loans to participators,” refunded only when the loan is repaid or released. This measure exists to prevent disguising income as a loan to avoid tax.

Key Term: close company
A company controlled by five or fewer participators or any number of participators who are also directors (CTA 2010 s. 439).

Where the company is part of a group (holding and subsidiaries), tax implications arise for group relief, loss carry-forward/back, and asset sales. Each company is taxed separately, but qualifying groups (75% ordinary share ownership) can transfer losses and profits for tax efficiency.

Worked Example 1.7

Soon after activating the shelf company, the sole shareholder borrows £30,000 from the company. What are the potential tax consequences?

Answer:
If the company is a close company, it must pay a corporation tax charge at 33.75% of the loan amount (s. 455 CTA 2010). This sum may be reclaimed when the loan is repaid. There is no charge if the loan is repaid promptly, is within the normal course of a money-lending business, or meets limited exceptions.

Ethical Use of Shelf Companies

The use of shelf companies must be approached ethically and transparently. Directors are subject to statutory duties: to act within their powers (CA 2006 s. 171), to act for the success of the company (s. 172), and avoid conflicts of interest (s. 175–177). Concealing beneficial ownership, or using a shelf company to suggest misleading company age or trading experience, may amount to misrepresentation or fraud.

“Phoenixing” (using a shelf company to give a false impression of continuity after insolvency) is an abuse. Advisers should ensure clients understand that a shelf company’s age does not equate to trading history. False representations, particularly in tenders or contracts (e.g., “two years’ trading history required”), may give rise to contractual or tort claims, including deceit and misrepresentation.

Transparency from the outset is essential. Use of nominee directors or secretaries must be disclosed; all registers kept current; and counterparties not misled regarding the company’s history or status.

Worked Example 1.8

A tender requires bidders to have “at least two years of trading history.” Your client proposes using a shelf company incorporated three years ago, but their business will only start trading now. Can they truthfully claim compliance?

Answer:
No. “Trading history” refers to actual trading, not mere existence since incorporation. Misrepresenting company trading status risks breach of contract and exposure to fraud claims. Advise the client to honestly disclose the lack of trading history.

Revision Tip

When advising clients on using shelf companies, conduct thorough due diligence, review statutory registers and Companies House filings, ensure full compliance and ethical use, and be vigilant to AML risks and duties.

Key Point Checklist

This article has covered the following key knowledge points:

• Shelf companies are dormant, pre-registered companies available for sale and activation.
• Shelf companies have separate legal personality and limited liability from the date of incorporation, regardless of dormant status.
• Activation requires share transfer, appointment/resignation of directors and secretary, updating Companies House and statutory registers.
• Compliance steps include updating the PSC register, confirmation statement, annual accounts, and proper maintenance of statutory books and minutes.
• Risks include potential hidden liabilities, penalties for late or inaccurate filings, reputation/ethical risks, and AML exposure.
• Shelf companies are subject to anti-money laundering regulations and PSC transparency requirements.
• Tax obligations commence on activation, including registration for corporation tax, VAT, PAYE, and annual filings.
• First board decisions typically include share transfers, banking arrangements, accounting reference date, appointment of officers, insurance, and initial filings.
• Liability on pre-incorporation contracts is avoided by the use of a shelf company, as the company exists when contracts are entered.
• Old Table A articles may apply in pre-2009 shelf companies, requiring review and possible amendment for appropriate governance.
• Use of shelf companies to misrepresent trading history, conceal control or beneficial ownership, or facilitate unlawful purposes is unethical and may lead to criminal, civil, and regulatory consequences.

Key Terms and Concepts

• shelf company
• separate legal personality
• activation of a shelf company
• confirmation statement
• PSC register
• anti-money laundering (AML) regulations
• beneficial owner
• memorandum of association
• articles of association
• board meeting
• general meeting
• due diligence
• close company