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Sole Prop vs LLC - Separating a partnership.

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  1. #1

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    Sole Prop vs LLC - Separating a partnership.

    Hey folks

    My wife(HKPR) has been running a small business for 3 years from within (on paper she was an employee) a partnership. She has a Sole Proprietorship which has been doing some (a little of) the invoicing for the partnership business.

    She’s now going it ‘alone’ from the partnership, but taking the employee (and several key clients) with her.

    My questions are focussed on what company structure to go to.

    • Business type: Consultancy
    • Turnover: About HK$1m - 1.5m p.a.
    • Clients: Mostly HK entities, 1 in France, very occasional one in PRC
    • Invoices: 3-5 per month
    • Suppliers: Couple of payments per month
    • Employee: 1, junior, full time, only been in HK 1 year, currently employed on a work visa by the partnership business.


    Is there a case to keep this business as an SP or should/must she be opening an LC?

    She doesn’t yet have a business bank account (but I guess that’ll be easy enough with her existing track record)

    I guess the main sticking point would be the visa for the employee (Must SP’s be only 1 person?) and a desire to keep costs as low as possible (New business in the past was brought in by the partnership, so there’s significant uncertainty going it alone).

    I’ve been trawling the various threads on this issue, but really appreciate your thoughts in relation to her situation.

    Many thanks:

    Sole Propietorship for Dummies
    https://geoexpat.com/forum/145/thread355285.html
    Opening a Ltd Company in HK
    https://geoexpat.com/forum/145/thread347763.html
    1 person Limited Company - how to get paid by your own company
    https://geoexpat.com/forum/145/thread351294.html

  2. #2

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    The overheads of a Ltd company might not be worth it as a startup faced with revenue uncertainty. Why commit to a range of fixed costs when your revenue is not predictable?

    One thing though - don't do sole prop business on a personal account. Seriously get together with the bank and open a separate account for business activities - keeps things simple and within bank T&Cs.

    I am not too sure about employee visa sponsorship - no clue.

    Sage and rkenia852 like this.

  3. #3

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    Quote Originally Posted by shri:
    The overheads of a Ltd company might not be worth it as a startup faced with revenue uncertainty. Why commit to a range of fixed costs when your revenue is not predictable?

    One thing though - don't do sole prop business on a personal account. Seriously get together with the bank and open a separate account for business activities - keeps things simple and within bank T&Cs.

    I am not too sure about employee visa sponsorship - no clue.
    Thanks Shri, that's a good start, appreciated. My sentiments exactly, I'd sooner she keep it as an SP if she can to keep costs down, however my thoughts about why an LLC might be needed are sponsorship of the employment visa and the liabilities that might come with the business (particularly if it has an employee). Hence putting it out to those with more experience in these things.....

  4. #4

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    Liabilities are the key thing with the sole prop. I was ok with these as I would be doing all the work (if any) so did not have to worry about an employee messing up. If I mess up, it would always be my liability. So keep the employee on a short leash!

    I have the same - a sole prop for my consulting work (of which there has been zero LOL). I was previously shareholder in an LC. The LC is a lot more work - not just the "obvious" stuff like accounting and setup costs. They also send you surveys you are required to fill in and other crap. Not to mention the burden of KYC by the banks.

    I opened a Neat bank account for the SP. (which has nothing in it, see above). So far it's been fine LOL. It's low cost, does the same stuff as a normal bank account and is easier to open in this environment.

    rkenia852 likes this.

  5. #5

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    Quote Originally Posted by HK_Katherine:
    Liabilities are the key thing with the sole prop. I was ok with these as I would be doing all the work (if any) so did not have to worry about an employee messing up. If I mess up, it would always be my liability. So keep the employee on a short leash!

    I have the same - a sole prop for my consulting work (of which there has been zero LOL). I was previously shareholder in an LC. The LC is a lot more work - not just the "obvious" stuff like accounting and setup costs. They also send you surveys you are required to fill in and other crap. Not to mention the burden of KYC by the banks.

    I opened a Neat bank account for the SP. (which has nothing in it, see above). So far it's been fine LOL. It's low cost, does the same stuff as a normal bank account and is easier to open in this environment.
    Thanks Katherine, that's helpful. When you say Neat is low cost, how much are you talking?

    I just spoke to HSBC and their costs are as follows: Account application (payable whether your application is successful or not - grrr) $1,400, although as an existing premier customer that's cut to $700.

    No monthly fees (providing the balance stays over $50,000), but a long list of fees for specialists services that I'm guessing she wouldn't need....
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  6. #6

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    Does anyone else have any input on the likelihood of being able to transfer an employee on an employment visa to a sole partnership?


  7. #7

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    Quote Originally Posted by Sage:
    Does anyone else have any input on the likelihood of being able to transfer an employee on an employment visa to a sole partnership?
    In my opinion, it shouldn't make any difference. I was a sole prop. for a decade in Hong Kong... never felt and need or saw any benefit to going LLC... It just seemed like extra cost and extra paperwork and I didn't feel I need the protection of limiting my liabilities, lol... YMMV on that point!

    I employed people and I can't think of any reason why it would make any difference to immigration what the business structure of the employer is...
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  8. #8

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    I'd check with immigration - they do like to look at the employer's finances and I'm not sure if the lack of audited records is an issue - should not be, considering this is a startup. But like It said, pure speculation on my part.

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  9. #9

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    Hey Sage,

    what company structure to go to

    • Agree with Katherine that "Liabilities" / "Risk" is the MAIN factor in the choice of company structure
    • Then, because the business is "Consultancy", you have to ask yourself,


    1. whether or not, such consultancy will bring your customers into a decision that may bring loss or damage?
    2. whether or not, the company will act and for and on behalf of the customers to perform any work that may result in certain legal obligations and consequences


    • Imagine the worst-case scenario - do you think the risk is bearable?
      If yes, go for Sole Proprietorship, if no, you may need to consider setting up a limited company
    • Also agree with shri that under the current size of the business and economic environment here in Hong Kong, starting with the Sole Proprietorship for existing business (lower risk??), and wait until the time when the business is ready to grow, then set up a limited company


    transfer an employee on an employment visa to a sole partnership

    • Assume: The Sole Proprietorship which has been doing some (a little of) the invoicing for the partnership business has a "business substance" that allows the Sole Proprietorship to act as the Sponsor of the VISA;
    • The business nature of the Sole Proprietorship and the Partnership (existing employer and new employer) is the same, such that the VISA approval rationales of the employee apply, then the "transfer" of VISA has a higher chance;
    • Remarks: Company Structure (Sole Proprietorship / Limited Company) has no significant effect on the approval chance of the VISA, yet, because the financial position of a limited company is separated, from the Immigration Department point of view, it will give better protection in secure the VISA status, and if you are applying with a Sole Proprietorship, more financial proof for the application might be required; besides, the VISA is a junior post, and the lack of business bank account of the SP might also be a problem at the time of VISA application;
    • Any chance for the Sole Proprietorship to submit the application first, and transfer the employment contract only when the Immigration Department has no or little adverse comment(s)?


    Hope this information suit you well.
    shri and Mr Chips like this.

  10. #10

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    Quote Originally Posted by CatcherBiz:
    Hey Sage,

    what company structure to go to

    • Agree with Katherine that "Liabilities" / "Risk" is the MAIN factor in the choice of company structure
    • Then, because the business is "Consultancy", you have to ask yourself,


    1. whether or not, such consultancy will bring your customers into a decision that may bring loss or damage?
    2. whether or not, the company will act and for and on behalf of the customers to perform any work that may result in certain legal obligations and consequences


    • Imagine the worst-case scenario - do you think the risk is bearable?
      If yes, go for Sole Proprietorship, if no, you may need to consider setting up a limited company
    • Also agree with shri that under the current size of the business and economic environment here in Hong Kong, starting with the Sole Proprietorship for existing business (lower risk??), and wait until the time when the business is ready to grow, then set up a limited company


    transfer an employee on an employment visa to a sole partnership

    • Assume: The Sole Proprietorship which has been doing some (a little of) the invoicing for the partnership business has a "business substance" that allows the Sole Proprietorship to act as the Sponsor of the VISA;
    • The business nature of the Sole Proprietorship and the Partnership (existing employer and new employer) is the same, such that the VISA approval rationales of the employee apply, then the "transfer" of VISA has a higher chance;
    • Remarks: Company Structure (Sole Proprietorship / Limited Company) has no significant effect on the approval chance of the VISA, yet, because the financial position of a limited company is separated, from the Immigration Department point of view, it will give better protection in secure the VISA status, and if you are applying with a Sole Proprietorship, more financial proof for the application might be required; besides, the VISA is a junior post, and the lack of business bank account of the SP might also be a problem at the time of VISA application;
    • Any chance for the Sole Proprietorship to submit the application first, and transfer the employment contract only when the Immigration Department has no or little adverse comment(s)?


    Hope this information suit you well.
    Many thanks Catcher, a very comprehensive answer as usual, thanks for spending the time to write, it's much appreciated.

    Regarding the SP submitting the application first, and then terminating the existing employment contract later - yes absolutely, that's the way we plan to do it. Both companies will continue to exist and operate with their own clients (sometimes the same clients for different aspects of complementary consultancy services) and thus there's incentive to keep the working relationship between the businesses amicable and mutually beneficial.
    Mr Chips likes this.

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