Choice of Business Entity in Hong Kong

There are three main business entity choices: (1) sole proprietorship; (2) partnership; and (3) company. The advantages and disadvantages to each business entity have been summarized below.
The easiest business entity to begin the business is a sole proprietorship. The main feature of this form is that it is identified with the sole proprietor. If the business makes a profit, it automatically is the income for the sole proprietor. If the business incurs a debt, it is the sole proprietor’s personal debt. If the business gets sued, the sole proprietor will be sued personally as well. This is the strength and at the same time is the weakness of the sole proprietorship.
Therefore, sole proprietorship may be appropriate for a low risk business that does not need limited liability and if the sole proprietor has sufficient capital. This is often used for small businesses.
When the sole proprietor does not have sufficient capital to start his business, he may need to invite other investors to join his business. A partnership or company may be more appropriate.
One benefit of partnership is to raise more capital. Other partners’ contributions may be what a sole proprietor needs to launch his business. 
The third form of business is the company and the two main advantages to incorporate are (i) easier to attract investors; and (ii) having corporate personality.
The running of a company requires compliance with the Companies Ordinance which can increase costs. 

November 2015

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