Economic Project

Contents

Introduction

Business Registration

~Meaning

~Registration Procedure for Sole Proprietorship and Partnership

~Registration Procedure for Limited Company

~Registration Procedure for Overseas Company

~Registration Fee and Levy

~Payment Methods

~Cancellation

Sole Proprietorship

~Definition

~Popularity

~Set-up process

~Advantages

~Disadvantages

~Reason of suitable for Small Business

~Examples

Partnership

~Definition

~Features

~Forms/Establish

~Liability

~General partnership

~Limited partnership

~Advantages

~Disadvantages

~Tax rate

~Dissolution and Termination

Limited Company

~Meaning

~Advantages

~Disadvantages

~Private limited companies

~Public limited companies

~Shares

~Procedures of Formation

~Taxes

Comparison

Conclusion

Working Table

Disadvantages

However, this does not mean you can run your company into enormous debts, extracting all the profits for yourself – the law will stop you fro doing this. You might also have to make a director’s guarantee which would make you pay any debts the company incurs if the business becomes insolvent. For example, banks will often only lend money to companies if the directors agree in writing to repay personally any debts to the bank if the firm collapses

  If you do decide to form a company, remember that the procedures for accounting are much stricter than for sole traders of partnerships. You will also have to become employed by the company if you draw a salary or fees, and pay both employee’s and employer’s National Insurance contributions. You will also pay Income Tax on the salary you draw from the company as well as Corporation Tax on any profits made by the company after paying out your salary and PAYE. So the financial organization of a home-based company is more complicated than that of a sole trader.1

1. Cost, time, and paperwork

  Creation of a corporation, an artificial entity, requires paperwork required by the government. The government also levies a charge for participation in the process. Creation of an organization takes time and should be done carefully. Once corporate papers are filed, the organizational process is also time-consuming. However, it is possible for the entrepreneur to purchase a “kit” containing the forms required for filing.

  Cost may range from HK$3000 for a simple incorporation to many thousand for a complex process. By doing work yourself, your costs will be approximately HK$3000.

2. Taxation

  As a legal entity, the corporation is entitled to the same rights, privileges, and obligations as an individual. One of the obligations a corporation incurs is that of paying taxes. Like individual income, the income of the corporation is similarly taxed by governments. Taxes must be paid before any owners of the corporation received dividends, and when the owners receive dividends, corporations are taxed at higher rates than individuals.

3. Red tape, paperwork, and regulations

Corporations seem to have an endless quota of reports and forms to file and regulations to comply with. Essentially these are hidden costs, and while a large business may be able to absorb these costs, they are a heavy burden to small business.

4. Perils of increasing capitalization

  While it is easier to raise capital by selling additional shares of stock to other, a problem may develop: When the corporation sells stock, each share usually has voting rights; if enough shares are sold to meet the need for capital, the owners may lose control of the organization. Venture capitalists may be willing to lend you money, but they want control of your company as return. It is not unheard of for corporate founders to lose control and even be fired or retired. 2 

1 How To Start A Business From Home (Third Edition) - Grahan Jones

  How To Books Ltd (1994) P.83

2 Small Business Management - A Planning Approach - Joel Corman & Robert N. Lussier

  Times Mirror Higher Education Group, Inc. company (1996) P.37-38

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