Are you pondering about beginning your own business in Hong Kong? Whenever you are perplexed about how to turn your business idea to reality, let’s have a look into the actions to create it.
Alike many startups, they will go through these 3 moves:
- Set up a company
- Write (and re-write) a business plan
- Find business partners
Step 1: Setup of a company
Tipping your toe into the water of business will lead you to the possibility of growth and making mistakes. Therefore, you have to manage the chance to gain and the risk of loss.
Capping your loss at maximum is necessary. The simplest risk-management tool is the setup of a limited company, then you develop your business under the name of the company, rather than under your own name.
Like many free economies, Hong Kong provides a legal entity which is officially “local private company limited by share” (“limited company” in short) for entrepreneurs to do businesses.
Technically speaking, the limited company is a legal person, and you are the shareholder as well as the director of the company. In this arrangement, you are owning and controlling the company but it is your company to engage in the business deals and bear the risk, instead of you personally. Therefore, your company is legally separated from your personal life. In other words, you are not holding unlimited liability originated from your company; the liability of your company is limited to the capital you have invested in it.
Before you write down your idea and your plan, think about the worst scenario: your business may lose all the investment, it may even be stranded in debt but you will not bear the debt and liability of your company in your own name.
Setting up a company can be done less than three hours if you are staying in Hong Kong presently. But if you are not, your new company will be ready in 5 working days.
You have grasped on the concept of a limited company, Let’s get the registration started.
1.1 Designing your company structure
As a limited company is akin to a bucket to include your business idea, your plans, and your actions, at the moment of incorporation, you will be the sole director and shareholder of your company in which you will hold merely 1 unit of the share of the company and your company account will remain empty. This is the simplest setup and is completely legal, so it is common in startups for new businesses to stay flexible and adaptive.
1.2 Naming your Company
Your first priority is to kick start your company. We suggest you skip, at least for now, about branding and marketing things. Quickly pick a name for your company to advance the administrative requirement.
No worry about the name, your company is famous for its flexibility, your company can operate many businesses under different trade names, which may not be equal to your company name and the “business nature” you have registered. Furthermore, you can apply to change the company name later.
Besides, your company is recommended to register all of your trade name and logo as registered trademarks to protect your them from infringement in Hong Kong.
1.3 Outsourcing the compliance functions
Your company has to comply with the administrative requirements which require locality – presence in Hong Kong. But you can lawfully fulfil these rules even you have none of the presence here. By employing the law firms, accounting firms and trust and company services firms (AsiaBC is one of them, the TCSP license number is TC001346!) in Hong Kong, they take care of the paperwork and a shared presence here for a competitive price. It is a no-brainer to hire the professional to get rid of the hassle.
Coming into effect in 2018, Hong Kong has joined the global effort in enhancing the transparency of private companies and regulatory on the service provider of company formation and maintenance services. Only the certified professionals in Hong Kong, including certified accountant (CPA), legal professional (oscillator) and Trust and Company Service Provider (TCSP) are eligible to offer company services as their businesses.
These measures are also introduced in the UK and Singapore.
If you will (have to) hire external parties for help, it is a legal requirement to look for these professionals to handle your Hong Kong company formation.
Registered Office address (RO address)
RO address of your company is a statutory requirement of company registration. The address must be a local address and exposes to the public and the authorities.
For the sake of your privacy and corporate image, you should not use your home address or any personal address as the registered address.
By hiring the registered professional as your corporate service provider, you will share its business address as your RO address, so the address is managed for you. Not to mention that you can choose a prime address in a central business district for a quick boost in marketing your company.
Company Secretary (CS)
CS is a statutory member of every company, your company include at least one person acting as the CS in your company anytime.
Although any Hong Kong resident or Hong Kong company can take this role, they must be professional in catering the compliance matters to avoid breaking the laws and consequence.
Just a reminder, if you are the sole natural person director of your company, you cannot take the role of the CS at the same time, so that hiring a service firm is the only solution. Other than this restriction, the role of CS can be taken by any member of your company.
Also be noted that the name of CS exposes to the public and the authorities, along with that of directors, shareholders and RO.
Designated Representative (DR) and Significant Controllers Register (SCR)
DR is a statutory affiliate of your company; SCR is a private document stating the current information of the company beneficial ownership and contact information of these beneficial owners.
Your DR is responsible for serving as the local central point-of-contact between the Hong Kong law enforcement officers and your company when the details of SCR is required for inspection.
The laws also stated that your DR must be a Hong Kong resident and either an employee, shareholder or director of your company if you want to appoint a natural person; or you can appoint an external party, similar to your company secretary, to take this role but the party must be a certified professional in Hong Kong.
Step 2: Writing a business plan
It’s time to write your business plan. The plan is under the name of your company rather than your name. If you have ever wondered why created your company first, it is because a company is a legal structure to scale up for inviting talents – would-be investors and partners – and it gives a sound impression of doing businesses to your everybody.
Before you start writing, keep in mind that the purpose of this document: to convince yourself that the business written on-paper will be profitable, it is because all your effort – your time and money – are on the line
2.1 – Writing to convince yourself
At a minimum, a business plan should:
- Be fundamental: Your business idea must sound loud and clear here, although how you make it true should change.
- Be objective: To implement your idea, you will evaluate your initial funding, products or services, competition, and sale and marketing plans as well as the potential to make a profit, then, you probably have a picture of your chance for breaking-even and success.
- Be factual: Your evaluation must accompany the factual proof. In Hong Kong, the open statistics prepared by the authorities and market-related associations are a good starting point.
- Be guidance: your business plan is also a blueprint of your business for the first few months, you and other founders should understand it clearly and viable to follow.
After writing a draft of your business plan, it is common to feel somehow “risky” because you are dealing with assumption and projection. However, you have already taken measure to minimize your personal loss due to the uncertainty by running your business under your limited Hong Kong company, instead of your name. So, be brave to move on.
We have seen many business ideas, they seem like a good idea but are proved to be not feasible at the moment after some analysis. The particular reasons are:
- Heavy competition: It always happens when you are going to do the same business by the same method as your competitors, you face head-to-head rivalry;
- Nonexistent market: The competition can come indirectly, your products or services are replaceable by the existent, or yours provide not better solutions for the customers.
- Insufficient funding: When the initial capital of your business runs out before you enter the breakeven, your business fails. So, your business should contain a forecast to keep the cash flow.
In case that any area of your business does not make sense, keep calm, take a step back, clarify the problems, make changes and improve your plan.
If a business idea fails on your business plan finally, it has, in fact, helped you and your would-be investors to avoid wasting money and time on an unrealistic business.
2.2 – Writing to convince others
It is time to elaborate the plan for the others. The choice of additional materials depends on your target audience – Who will read your plan?
The short answer is your prospective business partners, but who are my would-be business partners? We are going to take a look into it.
Step 3: Seeking business partners
In this scope of starting a new business, everyone who can provide input to grow your business should be considered as your partners. The idea is that your business plan can show them that you are here for doing serious businesses, and you will get them there.
Here are the type of partners you will come across:
- Bankers: Your business plan is required for an application of business account opening in a Hong Kong bank. The plan should help the bankers, who you will meet in the interview and the managers of who on the above level, to understand your business and quantify the risk level of misusing their account service.
- Skilled workers: You need talents, then you need to show your prospective employees your business is a reality – it is more than an idea because your have set your goals, action plans and additionally their place in your business to achieve these goals together.
- Cooperative companies: As a company in the startup phase, you probably be an unknown player in your market, then you are likely to partner with other companies for mutual benefits and thus accelerate your business growth. Setting up a formal agreement with other business could make all the difference in getting your business off the ground. Then, a business plan to utilize the uniqueness of your business is most welcome.
- Lenders: Investors, including angel investors or venture capitalists, generally require a business plan in order to evaluate your business, and financial projections describe where you plan to go.
To succeed in business, you have to react to changes and learn from mistakes. In the end, your business is dynamic while your business plan is static. However, writing a thorough business plan lets you have a better grasp of the opportunities and challenges without costly financial risk. You can also show your plan to draw the attention of your potential partners. After all, a business plan is a no-cost step to explore the viability of your potential business and avoid costly mistakes.