[Road to Entrepreneurship] Be Your Own Boss | Reap

[Road to Entrepreneurship] Be Your Own Boss

Jenny

7 min read

Overview: Start a Company in Hong Kong

In the wake of the epidemic outbreak, industries in recession and unemployment on the rise, it is high time to start your own business. Whether it's cashing in from the epidemic or running an online business to align with the novel "work from home" model, it's not that unattainable to be your own boss, especially in Hong Kong, where the low cost and easy procedures make starting a company a snap of the fingers.

Starting a company in Hong Kong brings a multitude of benefits

Not every country or city in the world is the quintessential place to start a company, Hong Kong, however, is certainly a paradise for start-up entrepreneurs. The benefits can be broadly categorised as follows.

  • Ideal business environment

Hong Kong, well-known for its entrepreneurial spirit, encourages start-up businesses with robust systems and low tax rates, not to mention the low threshold-you don't necessarily have to be filthy rich to start your own business. Of course, the dense and dynamic economic model also makes starting a company a path to prosperity in Hong Kong.

  • Booming internet development

The internet penetration rate in Hong Kong is over 90% and the time spent online per capita is one of the highest in the world, creating an optimal environment for online business/e-commerce. In addition, Hong Kong is very mature in terms of technology, resources, and market-the cost of starting a website is so low that even secondary school students can afford it.

  • All-round logistics and trade support

Many traditional storefront businesses or online businesses still involve product sales, where buying, selling or re-exporting are still the major pillars. As an eminent entrepot, the product manufacturing network, trade support and logistics facilities in Hong Kong are second to none. It is, therefore, not difficult to start a profitable business in Hong Kong.

Stepping onto the journey to start a company

What are the procedures to start a company? In Hong Kong, most can be handled online and are easy to pick up. However, if you are determined to be a successful business owner, you should do it gradually and prudently.

Seven steps to starting a company

Here we will analyse the process step by step from its procedures, prices and planning. To turn an idea into a start-up can be roughly divided into the following seven stages.

1. Why – Do you really need to start a company?

This is the first question you should ask yourself before you decide to start a company. It is not doubting your determination, but to demand for a deeper deliberation-is there a genuine business need?

When there’s a profit, there’s a place (for your company)

"I'm just selling something online, it's not considered starting a company, right?”

The fundamental step to start a company is business registration. According to the guidelines of the Inland Revenue Department (IRD), "selling something online" actually requires business registration, including –

  • any form of trade, commerce, craftsmanship, profession, calling or other activity carried on for the purpose of gain (whether through a brick-and-mortar presence or the internet);

  • any club which provides facilities, services and exclusive club premises to its members for social intercourse or recreation;

  • every company incorporated in Hong Kong under the Companies Ordinance or non-Hong Kong company that has established a place of business in Hong Kong, regardless of whether it is actually carrying on any business in Hong Kong;

  • every non-Hong Kong company that has a representative or liaison office in Hong Kong, or has let out its property situated in Hong Kong, regardless of whether it has established a place of business in Hong Kong; and

  • every limited partnership fund registered under the Limited Partnership Fund Ordinance, regardless of whether it is actually carrying on any business in Hong Kong.

Hence, it is evident that business registration is necessary even if you are only engaged in a small personal business.

2. Who –What does the company look like?

Once you have decided to make your mark, the next step is to think about what your company looks like. Company identity is mainly defined by its name and logo, and the company website is the shiny stage for the company to show its splendour.

Name and logo are indispensable

A good company always starts with a good name. Not only should a company name fit the business nature, company image and your personal preference, but also cater to the taste of the market. A well-received and popular company name is a sure step to success. The Companies Registry (CR) has published a "Guideline on Registration of Company Names for Hong Kong Companies", setting out the frequently asked questions about company names. Once you have a name in mind, you can check if it is already registered at CR’s Cyber Search Centre. Registrations that are identical or very similar to the already registered ones are often turned down.

The name and the logo each represents half of the company's identity. Once the name has been fixed, the logo is the next to be considered thoroughly. If you are starting a medium-sized company, you should probably hire a corporate affairs or corporate communications manager to handle the entire logo design project. A competent corporate affairs or corporate communications division should curate a customised corporate identity for you, detailing the corporate name, image, direction, as well as the full-colour, greyscale, and reversed out (white) versions of the logo, in addition to specifying the company name’s font type, font size and spacing, so that your corporate image can remain consistent and professional. You should also utilise the Intellectual Property Department's Online Search System to check the Trade Mark records to avoid "clashing” with the existing logos and risking infringement.

Invest in your website whether you are an online/offline company

Unless you are starting a one-man business or only trading on social media, you should consider setting up a website for your new company. In the age of the Internet, a website serves as your company’s spokesperson and upholds the forefront of its image. Nowadays, you can possibly write your own website-there are many affordable website building platforms available online and I won't go into the details here. Nevertheless, you should register your company name and build your website at the same time. If your desired domain name has already been registered, you may need to reconsider your company name altogether. Also, whether your company name is unique enough to appear on search engines is definitely something you should look into.

3. What – What type of company are you starting?

Once you have decided your company name, you must confirm the type of company before business registration. Apart from determining the business nature, you must also decide whether your company is an unlimited or a limited company.

Different rights and responsibilities of limited/unlimited companies

When discussing the legal positioning of a company, it can be boiled down to the two major types, namely Unlimited Company and Limited Company. Each has its own unique liabilities, legal statuses and annual tax arrangements, which are summarised and tabulated below –

Unlimited Company

Limited Company

Satisfaction of Debts/Liabilities

  • Unlimited
  • The owner is required to cover all losses of the company with his/her personal assets
  • Up to the amount of the shareholder's capital contribution
  • No additional capital contribution is required to cover losses

Legal Status

(e.g. for contracting, liabilities, litigation, etc.)

  • Operating as a sole proprietorship or partnership

  • No legal status
  • The company itself is a legal entity

  • Separate legal status from shareholders

Year-end Tax Arrangement

  • Audit by an independent accountant is required, with the audit report submitted to the IRD

  • All normal expenses of the company may be deducted
  • No audit is required

  • However, personal expenses, proprietor's and spouse's salaries are not deductible for profits tax purposes

Tax Rate

15%

16.5%

Applicant

Must be a Hong Kong resident or Hong Kong permanent resident

Both Hong Kong and non-Hong Kong residents are eligible

Responsible Agency

Inland Revenue Department (Wan Chai)

Companies Registry (Admiralty)

In other words, non-Hong Kong residents naturally start limited companies. As for Hong Kong residents, in general, if the company is of a certain scale, or with the intention to cooperate with large organisations, a limited company (i.e., Fin/Tech start-up, companies requiring capital raising) is more suitable, while an unlimited company is preferable for small, low-risk enterprises (i.e., self-employment, online stores).

4. How – What are the procedures for starting a company?

When everything’s ready, it’s time for Business Registration (BR). “Is it complicated?” This is a common concern of many new business owners. In fact, the Hong Kong SAR Government has placed the BR process at the e-Registry. Applicants only need to follow the step-by-step instructions, then registration and payment can all be done online. You can start your new company and start operating within a day at the earliest. That said, it certainly takes time to comb through so much information, sometimes applicants spend days just to consolidate the information they need to submit. Eager start-up business owners may need to allow more time for this.

One-stop company registration and business registration

Is "business registration" another name for "company registration"? No. There are different government departments responsible for them. Fortunately, company registration has already included that of business registration, thus, new business owners only need to follow the instructions to complete, submit the following three main forms and pay the fees accordingly –

1. Incorporation Form

Go to the website of the Companies Registry and download the Incorporation Form. Form NNC1 is required for the formation of a company limited by shares, whereas Form NNC1G is required for applicants of companies not limited by shares. For example, Form NNC1 commonly used for start-up companies requires the applicants to fill in general company information (company name, address, and founder(s)' information), and also report the share capital, company secretary and director(s) at the time of formation.

2. Notice to Business Registration Office

Download and fill out the "Notice to Business Registration Office", also known as Form IRBR1 from the same website. This is a one-page form for applicants to choose between a one-year or three-year business registration certificate.

3. Articles of Incorporation

If you are applying to become a private company rather than a public one, you only need to complete a simplified version of the Articles of Association, which are available on the CR website.

5. When – When should I register my company?

If your new business is still in the preparation stage and you have yet to come up with a company name, you can bide your time and not proceed with the company registration for the time being; until you officially "start charging for your business". You need to proceed with company registration and business registration within one month of starting your business. For a general business registration application, you can obtain a business registration certificate within 30 minutes of submitting the form; for a brick-and-mortar business, you should put up the business registration certificate in prominent positions in your place of business upon receipt, and the electronic version should also be printed for the same purpose.

Different businesses, different validity terms

Business registration certificates are generally available in one-year and three-year terms. Currently, the one-year application fee is waived thus much more cost effective.

However, if the new company is a long-term business, it is more appropriate to apply for a three-year certificate. Regarding certificate renewal, the Business Registration Office will issue a Business Registration Payment Notice in the middle of the month approximately one month prior to the effective month of renewal, which will then become a valid Business Registration Certificate upon settlement.

6. How much – How much does it cost to start a business?

In terms of statutory procedures, theoretically, the start-up cost is only the company registration and business registration fees — company registration in Hong Kong currently costs HKD 1,720 while the business registration fee depends on the terms of the business. The application fee for one-year Business Registration has been waived since April 2019, but applicants are required to pay an additional HKD 250 levy from the Protection of Wages on Insolvency Fund, whereas the total application fee for three-year Business Registration with levy is HKD 3,950. In other words, the total application fee for the one-year business registration plus company registration fee is HKD 1,970 and HKD 5,670 for the three-year business registration.

Start-up costs vary

In addition to the aforementioned registration and incorporation fees, start-up costs for different businesses can be worlds apart. If you are in the product-selling business, the first capital for purchasing goods can be costly, and the premises involved in a physical store can be astronomical. Even if you are starting an online store or a one-man business, you can't avoid the trivial expenses of website building, warehousing, technical maintenance, administrative costs, etc. Reap Pay, an online credit card payment platform, is designed for small businesses, where you can consolidate and pay all your business expenses in one go, while Reap Card provides a brand new perspective on financial management for small companies, rendering fractional spending easy and meaningful.

7. Where – Where will the company be located?

Many companies, especially after the epidemic, have started operating online in recent years, unless for businesses in the food and beverage or service and entertainment industries where a brick-and-mortar store is a must. Nowadays, you no longer need to be an IT professional to run an online business, since there are a wide varieties of online service platforms to help you with all your online business needs.

Collecting money online with a tap of your finger

To start a profitable company, collecting money is certainly one of the most important aspects. For example, Reap Collect is an online credit card payment collection platform empowering you to easily manage unlimited online payments simply by online registration at a low cost. Reap Invoice, another handy tool for online businesses, provides professional invoice management service free of charge, you can thus effortlessly manage your business earnings and expenses in one stop, meanwhile readily meet the tax filing requirements of starting a company.