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2018-07-18 09:05:28Starting UpEnglishLearn the difference between single-owner businesses and partnerships. Many small Hong Kong businesses have simple needs, so they don't... Businesses Versus Partnerships

Single-Owner Businesses Versus Partnerships

4 min read

When starting your small business in Hong Kong, it’s easy to get caught up in the moment and not pay enough attention to details. One of those oft-forgotten details is figuring out how you want to set up your business structure. Most small businesses fall into two major types: a single-owner business or sole proprietorship, or a partnership, which consists of two or more general or limited partners. A sole proprietorship means you alone own and operate the business, and because of that, you and your business are considered one and the same. A partnership means you’re pooling your resources with others and sharing the risks and rewards with them. Aside from liability, both of these small business ownership structures have their own particular advantages and disadvantages.

Pros and Cons of a Single-Owner Business

Single-owner businesses have the advantage of providing you with all the profit, which can motivate you to work harder and grow faster — although you do have to keep in mind that you’re responsible to deal with any issues that arise. Creating this type of business is simple, and tax rates run a flat 15% of your profit. Registration for a sole proprietorship just requires you to fill out a Business Registration Certificate application available from the government’s Business Registration Office, and receive a licence within one month of opening. By the same token, this ease of startup is mirrored in ease of dissolution if you need to close your business.

Another advantage of working for yourself is it lets you form closer relationships with suppliers and clients, keeping you on top of trends and at the front line of customer service. This boots-on-the-ground knowledge of how your business works combined with access to all financial records makes it simpler to expand in areas of possible growth. Because you work for yourself, you’re in control — but it also means you have to manage your time well and work efficiently. If you’re considering a sole proprietorship, make sure to create a business plan that focuses on how you’ll acquire the funding you need, since small startups in Hong Kong may not have access to significant financing.

Keep in mind, that single-owner businesses typically have a limit on the growth you can expect. Since you’re just one person wearing multiple hats, you might be required to hire workers to assist you or outsource tasks in order to grow. By bringing in extra hands and minds to handle your tasks, you can focus on the high-priority aspects of your business while enjoying a greater sense of work-life balance.

Pros and Cons of a Business Partnership

Like single-owner businesses, business partnerships in Hong Kong have a 15% flat tax on profits, saving 1.5% off of LLC corporate rates. These businesses also require the same paperwork as a single-owner business for licencing. General partnerships leave every owner personally liable, but limited partnerships make owners only partially liable for the company. These types of businesses generally assign partners with set percentages of the business depending on how much capital each party brings to the table and how much value each partner creates. Partnerships typically have a higher rate of public trust than a sole proprietorship, which helps with branding.

Some advantages to business partnerships include an extra set of eyes on the financials, which keeps every party accountable and helps catch errors as they happen — and the multi-user access available through QuickBooks Online can ease the way as well. Partners with complementary skill sets let each one do what they do best, knowing their partners have other key areas covered. Since these businesses tend to have more growth potential, you can likely find banks or finance options willing to lend money for extra marketing or product development. This business structure also ensures a clear line of succession if something happens to you or your partners.

While it’s easy to convince yourself that every business partnership is a match made in heaven, plan cautiously by outlining an exit strategy for your partner and yourself from the beginning of your working relationship. That way, if your plans change and you want to dissolve the business or transfer ownership from one partner to another, you’re legally and strategically prepared. If you want to add more partners, every existing partner must agree, which can make things complicated if someone doesn’t like how things are going. This means you need to spell out which responsibilities belong to which partner from the outset. Additionally, it’s important to select reliable partners who are strong where you are weak and an appropriate amount of time to contribute to the business.

While it might seem advantageous to incorporate, many small business ideas don’t benefit from this more complex business structure. When you’re running a solo shop or building a medium-size business, it may make sense to opt for a single-owner or partnership business structure, at least until you reach your maximum growth potential. By examining the advantages and disadvantages of each structure to see what works best for you, you can get your new Hong Kong business off on the right foot.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.
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