Should I Use a Shelf Company When Registering A Hong Kong Company?

Michael MicheliniBlog, Corporate, Incorporation2 Comments

When you are considering opening a company in Hong Kong you may be learn you have the choice of buying a shelf company. Sometimes this is misunderstood as a “shell company” but that is not a case. Shelf companies are companies that a third party service provider, such as an accountant or serviced office, has pre-setup and NOT USED at all. They are holding the company and waiting for a client (such as you the reader today) comes along and chooses this company name from a list. A shell company, I won’t cover in this post. It is a more derogatory term used for a business that has the sole purpose of cheating people and not keeping any assets in it. Those who get cheated try to sue or make claims to the company but cannot get much (or anything at all) because the company was setup as a “shell” to con people.

Now let’s go through the various reasons and thought process to decide if buying a shelf company instead of registering a new company is right for your situation.

Shelf Companies Have Short Processing Time

Speed is the main point of buying the shelf company. You review at a list company names, scope of business, and date of incorporation. You tell the agency one that you like, and then they will transfer their ownership over to you. This will be much faster, one to two business days, whereas setting up a company from scratch can take up to ten business days.

Why might you be in such a hurry? Maybe you have a limited amount of time to stay in Hong Kong and want to get this setup and apply for the bank account. Could be your visa’s length of stay isn’t too long or you were out partying the time you should have been taking care of business and and are scrambling. I won’t judge. If time isn’t on your side, a shelf company is your golden goose.

Maybe You Got A Business Deal Faster Than Expected

Getting a customer faster than expected is a good problem to have, you have a business deal! I know a lot of people who get caught up in this when we start a new venture, we want to wait to setup a new company until we have a reason to. Well, a good reason to setup that new company is you have someone who wants to sign a deal with you and send you cash!

Being a hustling entrepreneur, when a new deal goes too fast and the client wants to sign and pay – MAKE IT HAPPEN. If you’re want to do this deal through your new Hong Kong international business, then a shelf company is your solution. You call up an agency and they will be more than happy to help you get setup with a company name that you can use for the contract.

While you may be laughing at this reason to use a shelf company, I believe it is smart to wait to register a company until you have good validation. A customer’s willingness to pay is the best validation there is. Now you can go ahead with opening a company in confidence that it is at least somewhat viable.

You’ll sign the contract in a strange shelf company name like “Great Fortune Express Limited”. Explain to your client that this is your parent company of your business. Its common to have a parent company, and then we put various assets underneath the company, such as websites and consulting services, so you can deal with that later on. Company name change also isn’t a big deal later on if you insist (we’ll discuss that in a following section).

Express Bank Account Opening

Getting a bank account application will also be fast tracked. Because the company has is already registered, you can schedule the bank account appointment right away. As opposed to opening a new company whereby you will need to wait for processing time to get all government documents ready. With a shelf company, the whole incorporation progress is complete in two business days. Then you can schedule to meet the banker to arrange bank account opening immediately after.

As getting the bank account approved seems to be the most important issue for new business owners. If you don’t have time to wait to get a brand new company setup and have limited time in your Hong Kong trip – a shelf company seems to be the way to go.

Choose From A List of Industries in the Shelf Company List

When filing a Hong Kong Limited business, there are different scopes of business for the various company types. That means the company’s registered business nature in Companies Registry is in which category, e.g. trading, consulting, etc. When you are deciding which shelf company to buy, you can pick the shelf company with the registered business nature that fits their needs.

Talking to an agency, you will receive a list of shelf companies you can choose from, and the criteria that there is when making the decision.

Has An Older Registration Date – May Look More Established

Another thing that may or may not be important to you is that a shelf company registration date. In most cases, they are about a year old, you may be able to get ones two years older. I have received incoming emails from readers who are looking for shelf companies even older. Why would someone want this? A couple reasons:

  • Connector.

    When clients, banks, suppliers research you. In Hong Kong everything is public data. Utilizing the Integrated Company Registry Information System, anyone can put in your company name there and find your CR number is and the registration date. For a small fee you can research even more information. What blows my mind is still the majority of people I talk to aren’t aware that this exists – but the smarter, more established businesses do. So a smart company should do a background check on your business before they enter into a long transaction. By you stating you’re a Hong Kong limited company, your company is in this database. With an older incorporation date, your counterpart may feel more safe to do a deal with you compared to someone who just registered.

  • Connector.

    Financial Institutions Want More Established Businesses. Banks will do background checks on your business when you apply for a new account, credit cards, bank loans, etc. A factor they use in their analysis is the age of the company. This is not the only criteria banks review of course. They love to have a business who has big turnover on their audited statements), it will definitely help you when talking to a banker.

Want a Shelf Company With Existing Bank Account?

I’m sure you’ve been reading online and even hearing from word of mouth the difficulties of getting a bank account in Hong Kong.

So you may be thinking, “hey, why don’t I buy someone else’s business that has a bank account and take over the operations?”.

Sure, people buy and sell companies all the time. Of course that existing bank account needs to keep operational. Current customers are paying into this bank account and you have automatic deposits from your merchant account, Amazon, and other places.

It is a rather complex transfer. If you want such an option, we do have a short list of a few companies that have stopped doing their operations and want to deregister. As we go through the deregistration process, if you contact us while we have one of these companies in process, we can switch over the ownership to you.

We’ll work close with you and the old owner to switch over the bank account director signatures and other delicate transfer matters. You should also be aware that we need to screen the old company for any liabilities and outstanding debts or legacy matters. This is all part of the process.

So if you’re interested in buying a shelf company that has an existing bank account in Hong Kong attached to us- please fill out the form below

Contact us for a Shelf Company With Bank Account.

The shelf company transfer is straight forward, but please allow 1 to 2 months for the bank account to transfer over 100%. If you can come to Hong Kong for the banking that will be best, as we need to get your signature and other items.

Complexities Of Transferring Bank Account in a Shelf Company

As the banks in Hong Kong have gotten more and more strict, the requests for a shelf company with a bank account has risen.

Banks have adjusted to this as well. When you buy a shelf company and want to transfer the bank account over to you, it is a complex process. Obviously you do not want to have the old director on the bank account to sign anything on it. So you need to remove them from the bank account, and you completely take over the bank account.

This would require a visit to the bank and the old director to sign over everything. The bank will then want to know who this new director is, and it will be similar, if not more complicated, than a new account opening.

Do you, as the new director, have relevant experience in this business? Was the business active before you took it over? What is the reason you are taking over the company? As a shelf company, there will be little to no activity, so it may be hard to explain to the bank the reasoning you bought out this company other than for this bank account.

Bankers lately have been sending letters to their clients asking for more information about their account, so even if you are successful in taking over a shelf company and transferring over the bank account, they may ask questions later on. So be prepared with as much reasoning and documentation as possible. We’ll never tell you that you have too many documents!

Changing the Name of A Hong Kong Limited (For Shelf Company or Any Company)

Perhaps you’re not happy with the list of available names on the shelf company list. You could file a company name change after buying the shelf company, right? It is pretty straightforward to do – there must be a standard cost?

Yes, we can help file the company name change if you so desire. Its a straight forward flat rate, you can read our sales page here on changing your company name.

So this is a cost you can add to your budget if you are not happy with the company name choices on the shelf company list. But again, I do want to remind you – your limited company name and your website or brand do not have to be the same. Many of us have a “parent” company brand and various e-commerce and internet business products underneath it. You disclose the company name when signing contracts or invoices and purchase orders issued.

Cost To Open a Shelf Company Is the Same As a New One

So I know you may be wondering what the cost of setting up a shelf company versus opening a new company up from scratch is. When using an agency, the service cost is pretty much the same price as setting up a whole new company. Some service providers might charge a higher price for shelf company, but we keep the price the same.

Here’s our package:

  • Hong Kong Business HKVIP Package
  • Hong Kong Company Formation (includes all government fees)
  • 1 Year Virtual Office (with mailbox to keep your mail)
  • 1 Year Company Secretary
  • Full Help with Opening up a Bank Account and PayPal Account
  • 1 Month Refundable Security Deposit for Virtual Office
  • Petty Cash for Unexpected Expenses

Again, I don’t like to be pushy and sales-y – but you can check out our offering at HKVIP service and we will take care of your business needs for sure. Regardless which agency you use, I hope this post today is helpful for you and your business.

Now Let’s Look At Some of the Drawbacks of A Shelf Company

Now that I believe I covered all the positives of a shelf company in Hong Kong. I think it is only fair to cover the negatives or at least drawbacks you should consider when making the decision for shelf or new company.

Limited Name Choices

When you choose to register a shelf company, you receive a list of companies they have on their “shelf company list”. Agencies don’t know you or your brand and have to make a best guess and keep names as generic as possible. Some of the company names make Westerners laugh a bit. It is the best attempt by the Hong Kong agency to keep the name selection for as wide of an audience as possible.

Because of this, you may not be happy with the name choices and still insist that you register a company with the name that you would want. But, keep in mind I did mention above ways to change the Limited Company name later. Your limited company name isn’t so important as your product or service (brand) name and they are separate things.

Avoid Scams – Make Sure You Buy From a Trusted Agency

This can be a bit of a specialized project. Buying and then transferring over a shelf company from the agency to you and your partner’s name and ownership. In some ways, it is the same process as buying any company. A scammer could transfer you a company that may be “broken” or have previous history. There can also be other kinds of scams that could happen in this sensitive transaction. I would urge you to only buy a shelf company from an agency you know and trust.
But for the completeness of this article, I mentioned before some people asking me if they can buy a limited company from me. So I mentioned in previous posts that I sold my company in Hong Kong and decided to structure it as an asset sale. That means I transferred the IP and assets over, paid out the liabilities, and then closed the company. Some friends wanted to buy this limited company from me as it had a few years of history and transactions. I preferred not to do that and instead close the limited.

I just felt transferring to someone else for the sole reason of them to apply to bank accounts would be risky. I did have some liabilities in the company that I assumed. But maybe the buyer might find new liabilities later if new creditors wanted to try to claim that entity. And maybe there are other issues unexpected, it can get messy quick.

Make 100% Sure There Are No Liabilities In the Shelf Company’s Name

If you don’t buy a shelf company from a trusted agency, you risk there being previous activity in the company before you take it over. Previous activities can be:

  • Bank Debt
  • Credit card balances
  • Contracts signed on behalf of the company that come up in the future.

So if you’re not going to use an agency and buy a private company from someone else, make sure you do your due diligence.
It makes me think of the Simpsons episode with Artie Ziff, Season 15, episode 14:

Artie requests to stay with The Simpsons until he gets back on track. Marge discovers that the SEC are looking for Artie. While playing poker with Homer and the gang, Artie puts up 98% of his remaining stock to make a bet and Homer wins the lot. The SEC arrive, but Homer is the one arrested as he is now the major stockholder. Homer gets sentenced to ten years in prison.

So buying a shelf company (or any company) you need to be careful that you aren’t taking over liabilities and it gets you in trouble. Hopefully you will never get into a situation like Homer Simpson does here.

Being aware is the most important.

You May Need To File Your Annual Return Soon

Because this shelf company previously registered, the annual filing date may be coming up soon. When you are reviewing which shelf company to buy, you should also pay attention to when the next annual return (form AR1) is due as well as any other filings. Ideally if it has almost as much time as if you opened a new company – you almost can’t lose here! But more than likely you will get more time to file with a new company than buying a shelf company.

Remember, you’re buying a shelf company for speed now to get the company setup while you’re visiting Hong Kong. That way you can immediately get the bank account application and interview done upon arrival. If you plan more in advance and have more time in the setup process, you can win more time from filing your annual return later. Rushing something is almost never as good as taking the full amount of time to process it. To each his own.

Want to Sell Your Company As a Shelf Co?

We have been receiving requests from people that have inactive Hong Kong companies and are looking for a buyer. This has been a developing market, and we can add your business to our list of “shelf companies”. There will be a due diligence process and other documentation. If you have a bank account attached to this shelf company, please let us know which bank account and other details.

So Are You Going Shelf Company or New Company?

Hope this post helped you out in your decision making. I know we hear a lot about shelf companies and it sounds so mysterious and somewhat “shady”. But if you are in a hurry and want to get the banking setup ASAP with limited time in Hong Kong, shelf company seems to be the way to go.

If you’re looking for a service provider, Global From Asia is a registered company agency in Hong Kong, and you can check out our HK company opening package or contact us for any questions or concerns you may have!

Did I cover everything? What are you thinking – I’d love to hear it in the comments below.