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Sole proprietorship for small e-commerce business: what are the true risks ?

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  1. #1

    Sole proprietorship for small e-commerce business: what are the true risks ?

    Let's say I say some items which don't require aftermarket support. Around $40 USD each (something like a fancy card holder). What are the risks as a sole proprietorship ? If a customer is unhappy, I can give them a full refund. The order sizes to the manufacturers will remain small.
    Is it crazy to start out as a sole proprietor, until the revenue opportunity is proven ? I'm worried about the non trivial ongoing costs of maintaining a private limited company.


  2. #2

    Join Date
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    I am assuming you are asking from a pure liability perspective.

    If so, no reason for this to not be a sole prop unless you are selling something that can damage a person/business.Eg. you are selling undergarments that could possibly leave someone with a rash or you are providing a service to a business of any sort.

    IF yes, then a LLP is perhaps a better choice.

    Additionally, if the intention is an opportunity for the business to be scaled and sold in the future, a LLP makes it easier to split shares etc. and maintain the protection of liability.

    Hope this helps. Good luck!


  3. #3

    Thank you for your response. I think it truly doesn't make sense for me to register as an LLP when the revenue opportunity is not prove, and I'm not even sure yet i'll clear the $15k HKD / year to do auditing , business re-registration, etc. I'll start as a sole proprietorship and revisit in the future if necessary.


  4. #4

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    You need to give a warning to customers not to put your product into their cavities:

    https://worldnewsdailyreport.com/wom...de-her-vagina/


  5. #5
    Quote Originally Posted by rkenia852:
    I am assuming you are asking from a pure liability perspective.

    If so, no reason for this to not be a sole prop unless you are selling something that can damage a person/business.Eg. you are selling undergarments that could possibly leave someone with a rash or you are providing a service to a business of any sort.

    IF yes, then a LLP is perhaps a better choice.

    Additionally, if the intention is an opportunity for the business to be scaled and sold in the future, a LLP makes it easier to split shares etc. and maintain the protection of liability.

    Hope this helps. Good luck!
    Apologies for being picky, but "LLP" means limited liability partnership. I suspect you mean "limited company"?
    rkenia852 and shri like this.

  6. #6
    Quote Originally Posted by dustpuppy:
    Let's say I say some items which don't require aftermarket support. Around $40 USD each (something like a fancy card holder). What are the risks as a sole proprietorship ? If a customer is unhappy, I can give them a full refund. The order sizes to the manufacturers will remain small.
    Is it crazy to start out as a sole proprietor, until the revenue opportunity is proven ? I'm worried about the non trivial ongoing costs of maintaining a private limited company.
    There are many potential sources of liability arising from a business. Operating through a limited liability company may protect you from some of them possibly including liability for injury your products inflict on customers.

    While in theory you may also be able to ringfence obligations like lease payments and borrowings, in practice most landlords and finance companies will require the owners of small companies to guarantee the lease payments and loans.

    There are also a number of circumstances where limited liability will not protect shareholders and directors - most notable fraud.

    All that being said, there is no shortage of small businesses which are carried on as sole proprietorships rather than through companies - they are cheaper to run and for those with relatively low levels of net profit there could be lower tax. YMMV
    shri likes this.

  7. #7

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    Quote Originally Posted by traineeinvestor:
    Apologies for being picky, but "LLP" means limited liability partnership. I suspect you mean "limited company"?
    Quite right. LLC is what I meant!

  8. #8

    Join Date
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    Technically whether limited company or SP, you still need a BR, legally speaking. Fees are 2250/year or 5950/3 years. For this coming year there will be a discount so it's only 250/year. Audit costs should run you 2k per year. You can spend more if you don't want to shop around. Deregistering a company is a process and expense as well so most keep it active.

    People usually only sue if they think they can get something from you. Otherwise it's a waste of time and energy and possibly that you don't ever pay the debt. So most starting out companies can just try until they feel it is worthwhile to make a company. The decision is ultimately yours. You can quickly burn cash if you set up every process that developed companies have. Making the right decisions at the right time is key.

    Additionally you can obtain professional insurance, which I have to protect the company in the event of a lawsuit. I did not have this on day 1 but after I found the idea would stick.

    If you only have small revenues let's say under 100k hkd per month, I wouldn't bother to set up anything. Focus on revenues then play catch up on processes and procedures later is a better way, in my opinion.

    In some cases a customer will only work with a registered company or only pay to a legal entity (not an individual). Then you'll have time make the decision of what to do. In HK it is not cheap per say compared to other markets and it is an ongoing cost so make your decision wisely if you are in the game or not.

    hellojello likes this.