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REGISTRATION OF SOLE PROPRIETORSHIP IN HONG KONG
General
A sole proprietorship business is the kind of business that
is conducted by one person. The person runs the business on
his own without sharing his business with anybody. He gets
all the profits of the business, but he also takes up all
the risks of the business. Although a sole trader does not
have to be responsible to any business partners, he is wholly
liable for all the debts incurred in the business.
An investor may consider using sole proprietorship as the
device for conducting his business :
• if this is the first time he runs a business;
• if he is thinking of setting up a small business;
• if he wants to make things simple and avoid
complicated formalities;
• if he has adequate finance to run the business
so that he does not need to get financial assistance, e.g.
obtaining a loan from the bank or finding someone to support
his business financially; or
• if the business intended is not risky.
Advantages of Sole Proprietorship
If this is the first time an investor runs a business, probably
he is thinking of some sort of business that can be easily
manageable. He may not want to start business with a lot of
complications. Simplicity is the main advantage of sole proprietorship:
1. Simple to set up - all the investor needs
to do is to apply for a business licence from the Business
Registration Office. Every person carrying on a business shall
make such an application within 1 month of the commencement
of such business.
2. Easy to make decision - a sole trader does not need
to discuss with other people before a business decision is
made. As a sole trader is the only boss of the business, he
can simply decide in whatever way he likes. He does not need
to get approval from his business partners before entering
into a contract.
3. Efficiency - without the necessity to join with
other people in making a decision, a sole trader normally
can run his business in an efficient manner. A business decision
can therefore be made quickly.
4. Profits entitlement - a sole trader does not need
to share the profits with other people. He gets all the profits
of the business, which provides a good incentive for him to
work hard.
5. Close relationship with customers - as a sole
trader is the sole boss of the business, it is quite often
that the sole trader will fully and actively work in the business.
In fact a sole trader has to do so because of his unlimited
liability in the business. This develops personal and close
contacts with his customers.
Disadvantages of Sole Proprietorship
1. Sources of finance - a sole trader, being the sole
boss of his business, will have difficulty in sourcing finance.
Unless a sole trader himself has adequate finance in setting
up and running the business, he needs to be cautious in managing
the finance to avoid the occurrence of liquidity problem in
the course of business.
2. Heavy workload - although a sole trader can make
speedy and efficient decision, he also has to make all decisions
himself. This makes him very tired because there is no one
to share his burden. The situation may even worse if he becomes
sick and is unable to take care of his business in a period.
There may be some solutions to solve this problem. For example,
a sole trader can employ staff to ease his workload and delegate
authority to them to make decision on his behalf, but it is
still the sole trader himself to shoulder all liability of
the business.
3. Unlimited personal liability - it is risky to run
sole proprietorship business because a sole trader is the
only person to be responsible for all liabilities of the business.
His liability in the business is unlimited.
4. Capital - a sole trader has to contribute all the
working capital for setting up the business. There being no
other people to share with him. At best, he may borrow some
money from his friends or relatives.
5. Losses - A sole trader shall bear all the losses
resulting from the business. It can be a great psychological
pressure on him when the business is slipping down.
Procedure for Setting up Sole Proprietorship
An individual who conducts business in Hong Kong as a sole
proprietor must register with the Business Registration Office
of the Inland Revenue Department within one month of the commencement
of business. For details of the required procedures, please
browse the website of the Business Registration Office at:
http://www.ird.gov.hk/eng/tax/bre.htm or contact us at
info@bycpa.com.
See also: Step by step guide to register to sole proprietorship company in Hong Kong through Kaizen
Related Topics
Features of Hong Kong Company
Non-Hong Kong Company (Overseas Company, branch office)
Hong Kong Partnership Company Registration
Business Registration
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