A. Types of business organisation – sole proprietorships, partnerships and limited companies
In general, there are three ways to start a small or medium-sized business in Hong Kong : starting a new business, buying an existing business or buying a franchise.
If you choose to start a new business, you should conduct feasibility studies on demand (including customer profiles, buying habits, products and pricing), market share and competition, projected sales and estimated expenses (both fixed and variable).
If you are thinking of buying an existing business, then you should note the following:
- You should be aware of the business assets (such as buildings, equipment, personnel and inventory, reputation and goodwill), sales revenue (established product and market), costs, debts and profits and losses of the company that you plan to purchase.
- Care must be taken with the negotiations and purchase agreement, which should include escape clauses that cover financing, the inspection of all records, obtaining the necessary licences and rights and any liability that is to be assumed. You should appoint a lawyer go through the purchase agreement.
Buying a franchise is perhaps the fastest and easiest way to start trading, and carries the additional advantages that the product or service is usually well known and the market has been established. However, you should be aware of the following issues:
- Training, advice regarding location, advertising and promotion, and probably financing services are usually available from the franchiser.
- You must be careful of any hidden costs such as royalty arrangements (franchise fee) and supply agreements for equipment and materials, and should be aware of the potential for loss of control over management procedures. You should appoint a lawyer go through the franchise agreement.
- What are the characteristics of sole proprietorships, partnerships and limited companies? What are the advantages and disadvantages of each type of business?
- How can I set up a sole proprietorship, partnership or limited company? Do I have to obtain a business registration certificate from the Inland Revenue Department and register with the Companies Registry before commencement of business?