Topic 9 Business Organisations

Topic 9 Business Organisations - TOPIC 9: BUSINESS...

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TOPIC 9: BUSINESS ORGANISATIONS Readings: Arjunan & Majid, Business Law in Hong Kong , chaps 28-29. Introduction There are three main types of business organizations permitted in Hong Kong: The sole trader/proprietor The partnership The limited liability company The handful of unlimited liability companies in Hong Kong need not concern us. Many businesses choose to incorporate themselves because of the attractive legal advantages that limited liability brings. However, some of the advantages are offset by the personal responsibilities that the law imposes on Hong Kong company directors. Many business people may therefore find that a more appropriate first step is to run their business as a sole trader, or with partners, which involves far fewer legal responsibilities, duties of care, and formalities. 1 THE SOLE TRADER/PROPRIETOR The sole trader/proprietor is the simplest and most flexible legal framework for business actives. It consists of one individual carrying on a business. Such an individual may engage employees but is personally responsible for all the debts incurred and all the decisions made. The sole trader or proprietor takes all the risks and all the profit, and the law applicable is the law which applies to any individual of full legal capacity in Hong Kong in the conduct of his personal life. The legal requirements for going into business as a sole trader/proprietor in Hong Kong There are almost no legal requirements. The first legal formability is to register the name of the business with the Business Registration Office under the Registration of Business Names Ordinance. The sole trader must also notify the Inland Revenue when the business begins operation and when an individual who is liable to salaries tax under the Inland Revenue Ordinance is employed. In addition, if the sole trader employs anyone in the business, the Employment Ordinance and the Employees’ Compensation Ordinance will apply, as employees in Hong Kong are protected by law. The Advantages of Being a Sole Trade/Proprietor The main advantages are the flexibility and lack of legal formality in establishing a business as a sole trader/proprietor, and having total control and full decision-making powers over policy, profits and capital investment. There are no restrictions on the sole trader later deciding to introduce a new partner into the business, if that is the decision of the sole trader. There are also no legal restrictions on the sole trader/proprietor later selling the business as and when desired. The value of the business will obviously depend on the goodwill of the business and what is to be sold. 136
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The Disadvantages of Being a Sole Trade/Proprietor The disadvantage is the personal liability of the sole trader/proprietor, which may result in personal bankruptcy. A second disadvantage is that the death or illness of the sole trader ends the business. The employees cannot continue the business, as it is personal to the sole proprietor/trader.
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Topic 9 Business Organisations - TOPIC 9: BUSINESS...

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