Business Structure Specifics: What Does Entity Type Mean?

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The thoughts of starting your business can be equally exciting and daunting at the same time, and to have a feeling of the former, you need to arm yourself with knowledge. Starting a business is no child’s play; popular businessmen like Warren Buffet, Bill Gates, Jeff Bezos, and the likes didn’t make the sacrifice for anyone to ridicule their hard work.

Business knowledge such as the proper time to start the business, how to get started with sourcing for capital, how to attract customers and sell like a pro, and how to register your business should be your utmost priority. Business registration entails providing what type of business you want to run, business structure specifics, and all.

Arming yourself with the essential knowledge of setting up your business is vital hence the need to know the basics of entity types.

What are Entities?

Entities are simply organizations created by humans to carry out business activities. It is also referred to as the legal structure of any organization, and it is so important to all business owners as it determines how such a company is taxed. There are various types of entities; partnership, sole proprietorship, corporation, limited liability company, etc. 

Why Do You Have To State Entity Type

The importance of stating your business entity types goes beyond registration. Your business entity types determine the tax rate that your business will be charged, so if your business is a sole proprietorship and you fill in for a limited liability company, then bear in mind that tax will be deducted from your revenue as a limited liability company instead of a sole proprietorship business.

Businesses in Hong Kong enjoy a tax rate cheaper than in other countries, but the 16.5 percent of revenue they pay also differs. For instance, if the Hong Kong government charges 16.5 percent for a sole proprietorship, the tax rate for limited liability will be higher than that because of the size and scope of the business. 

This shows why you need some legal knowledge when registering your business anywhere in the world. Any mistake could affect the business negatively.

Incorporation Entity Types in Hong Kong

Incorporation entity types in Hong Kong are similar to other countries, just that the law binding them might be slightly different.  The most common types of business entities in Hong Kong are as follows;

Sole Proprietorship

This is a type of business that is common around us. A sole proprietorship business has one owner: you. The loss and profits of the business are not shared with anyone. Starting a sole proprietorship business is easy; it starts automatically when you begin selling goods and services.

Sole proprietorship doesn’t require any paperwork; you just record your profit and loss in your tax documents.

Limited Liability Company 

A limited liability company is the most common type of business entity in Hong Kong. It is pretty different from sole proprietorship as it requires paperwork and business registration. 

Limited liability company offers protection of personal assets from business risks; this means in case the business runs into debts, only the business can be sued and only proceeds from the business can be used to pay the debt because it is a separate legal entity. 

Partnership

This type of business entity allows two or more people to come together to establish a business. It can either be a general partnership (GP) or a limited partnership (LP). 

A general partnership is similar to a sole proprietorship as they don’t really require formal registration, but a limited partnership requires you to register with your state government before commencing the business. 

Foreign Company Office 

This type of business entity is just a branch, representative office, or a subsidiary of another company that has its headquarters in another country. 

Foreign companies opening an office in Hong Kong can enjoy the patronage of the high population, expand their horizons in terms of services, and maximize profits.

Conclusion 

Starting a business can be exciting and daunting simultaneously. Arming yourself with essential knowledge of what business entails is important; this will prepare you for what’s to come.

One of the things to get familiar with is business entities; this will give you an insight into what type of business you should establish and what to know so there won’t be any mix-up during company registration.

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