Thinking of setting up a new Hong Kong company, or a company anywhere for that matter? Maybe you read our Hong Kong registration guide and are ready to start – but wondering if you can do more than 1 business from the same corporation?
Here’s an exact question I received the other day:
I am interested to open an HK company, but I have a few different businesses. Would I need to setup a separate company for each one, or can I use the same company structure for all businesses?
So how does that work? It’s quite a common question that comes up and deserves a guide post on its own. So, today we will discuss the factors in deciding if you should operate more than 1 business from the same corporate structure.
Let’s hit it point by point!
First Off – What’s a Business?
Since this is a business blog- what is a business? Can think of a few different variations of the definition but I see it as – separating your personal activities from an act of buying and selling products or services for a profit. You could do all of this in your personal name, and be personally liable for all potential issues that come up. Yet you may not be able to get a merchant account or do other kinds of services without licenses in a company name.
So now, you’re a budding entrepreneur. Not sure exactly what you want to do, or what people will pay for. So you have a couple blogs, a few Amazon listings, and doing some web design for people. Yes, quite a wide spread of services. Is this one business or many?
Really, that is up to you – it can be 1 business, or it can be a few businesses, let’s go into the reasons why you would do as 1 or separate them up.
A Company Needs 1 Company Name
This is where it can get tricky for you. You need to pick a company name. We have a full post on strategies for picking your company name, but here are some highlights.
Do you want to name the corporation after 1 of the businesses? Say you’re selling Water Bottles on Amazon, and your product is named SuperBottle. Do you make the company name SuperBottle Limited?
But most of the time what people do is make the company name “umbrella company limited” and then the SuperBottle brand is owned by this company.
That way, you can later sell the WaterBottle brand to another company, and get the cash sent to your Umbrella Company Limited business bank account. This would be handy if you are doing a few other “businesses”, let’s call them projects, and want to keep those running.
Plus a lot of times a buyer doesn’t want to buy the company, they want to buy the asset instead. Check out the post on “Buying or Selling your HK company” I wrote covering my own process doing this.
But if you are set on naming the company after your website or brand, then it may be awkward to have other projects in there and sloppy later to sell the whole business. Or you can wind down those other products once you find the clear winner.
Business Banking Will Be In 1 Company Name
So, here again about naming. The business bank account doesn’t care about SuperBottle brand, they will open the company bank account in the name of the business. So, if you name the company Umbrella Corporation Limited, the business bank account will be in that name.
How do you receive payments? If you ask people to wire transfer money to you, you’ll need to give the name on the account. You may then need to explain to them “Umbrella Corporation Limited” is the parent company of SuperBottle brand.
But by doing this, you can have other brands, products, and services under the same business.
Though I have to put a last point here on the banking section. We all know it is getting harder to open a bank account (read my post on visiting over 15 HK banks in 2 days), so if you go into the bank saying your company does 8 different types of business activities, I feel that would be a red flag.
Focus is key in success (I’m honestly always struggling there) and so when you apply to the bank account, pick your main business line as the focus of the application and banker interview.
Multiple Websites For Each Business
So if you have a few brands, you probably make an individual page for each one of them. I know, we all wake up in the middle of the night with a great new business idea and one of the first things we do is buy the domain. So you’re probably like me and have a bunch of unused domains in your registrar account.
But that is part of being an entrepreneur. About being a creative person. We can’t get it right every time.
So this leads back to having an Umbrella Corporation. Make a 1 page site for that company name, and list out each product or service it does on that page. This way when someone Googles your company name, this page hopefully will be up there in the ranking. It will bond everything together and make a clear business case.
I need to work on that to be honest, Shadstone Limited is our company name here for Global From Asia, and I have yet to update the parent companies website with this business blog!
On each brand or service page, you can add on the footer the parent company’s name. Even a link to the website if you’d like. This way the website visitor knows what is up and understands there is a parent company on top of this product or service.
Make sense? I’d love to hear how you handle this in your own business, consider leaving a comment at the end of the article!
Same Ownership Between Shareholders?
Here is a big one – will you have business partners in the company? Will they be owners with you in all these separate businesses?
If they will be the same percent shareholder as you in all the businesses, then it leads me to recommend setting up one company.
But if you want to have different percent ownership for different shareholders, it will get confusing and hard to track if you use the same corporation. Maybe you can get by with some contracts, but I would worry it could cause fights and misunderstandings down the road.
We’ll cover some other ways below, but what some people do is each open their own company and then have a JV (joint venture) business that is owned between the 2 companies. This is a bit more involved and advanced, and of course will take more money and time in setup and maintenance.
As a single shareholder and single director, you can always have that company own shares in other businesses, and better keep track of the various holdings and operating companies.
Another Option – Branch Offices
It’s about time to bring up branch offices. We have a podcast with Sunny Wong on operating more than 1 business in the same limited, worth a listen. What was discussed was that you can open a “branch office” under 1 limited.
What is that? Basically, it is meant for local HK businesses who have another restaurant or office in another part of town. They want to have a manager who is in charge of this business, and can put them on a separate bank account as a signer. Once you get this branch office open, you can then open a new bank account in the name of this branch office. That way your customers will pay that bank account (which has the name of the branch office, not the company limited’s name) and not be confused if the name doesn’t match the “business”.
But, to be clear, there are no separation of owners or directors. The same ownership structure and directorship as in the parent company. That means, if the branch office does something illegal, or loses a ton of money in the business, the parent company (limited) will have to be responsible to take care of the matter.
Costs – 1 Limited Is Cheaper Than More Than 1
This is obvious, but necessary to mention. When I talk to a lot of people on the phone, they go on and on about a company in BVI that owns a HK company, and that HK company is a JV (joint venture) with another HK company that has different owners, and then it is invested by a Chinese company who is funded from an American company that has a bank account in Thailand.
Just an example. Yes, I have some pretty complicated phone calls!
The more companies, the more bank accounts, the more complicated it will be later. And the more costly. You need to keep the government fees, the banking fees (minimums for each bank account), and just keep all this in the back of your mind to operate!
Focus, and simple is the key to success. All these corporations and contracts and structures is meant for Google and Apple when they are making millions and billions of dollars. If you’re at that level, then more power to you! But many people are at the early stages and want to drive a Ferrari car. Start with a Ford and work your way up. You can always sell the car and trade up for a Lamborghini once you get there.
Bookkeeping – Multiple Business Lines in 1 Book
Now is the part I know a lot of entrepreneurs cringe at – bookkeeping. It is a necessary “evil” as it is the barometer of your business. By checking the financial reports on a regular basis you will be able to see what is working and what isn’t.
So if you’re like our earlier example of the entrepreneur doing a few blogs with affiliate income, selling some products on Amazon, and doing some web design freelance it may be hard to know what is working?
But that alone shouldn’t make you setup a whole new business. With accounting software these days you can set up different business lines, and when you categorize the income and expenses, you can specify which business line each cost is going into.
That way, when you run your financial reports, you can realize, “wow, I’m losing money on the web design, but I’m making a ton on Amazon. Maybe I should stop working on the web design and focus on Amazon instead.” Sure that may come out to be obvious without bookkeeping, but more critical details will also show up.
I hope you take me up on the bookkeeping. And if you really don’t like it, you can also consider our bookkeeping service to keep it up for you. Knowing your financial reports will let you sleep better at night, and work on your business instead of in your business.
But books alone shouldn’t make you setup a new company, that is for sure. Technology nowadays solves this.
Adding a New Owner in 1 Of the Businesses?
As your business develops, you may take on new business partners. What might happen is your Amazon is doing well, and a guy wants to buy in to be a partner there. But you have those other 2 side businesses, what do you do?
Probably best to sell or close those and go all in on what’s working. But maybe you want to try to keep those running. So here are a couple ideas in the short term:
1. You can make a private contract between you and the new owner and specify which parts of the business he is investing in. List out the Amazon business, and be clear that it is for X,Y,Z. At the same time it’s not fair to him or her if you compete with your own business, so I would recommend putting a clause in there that you will not compete with this current business line in any of your other ventures.
2. You can spin off a new company right away. You could just decide, hey, I’ll make a new limited company right now, move over this business line to that company and give shares to the new owner(s) to make it clear. This is the more obvious why, but of course the more involved and costly.
3. Close other business lines. As mentioned earlier, you could just stop doing the other business activities. Focus is the most important part of succeeding – when your’e trying to manage a whole bunch of business, your brain will reach fatigue. Believe me, I have been there!
4. Let the owners all own the other parts of the business. Maybe just let them buy into the whole current corporation. Maybe they get less shares or different terms. They should be fully aware of what the business includes and want it! Being transparent is key, and having all owners owning and operating all the same business lines is something many have done to reach long term success.
Sure there are other combinations too. But having clear contracts on what is the business is the key. If you want to wait until the venture is making enough money to justify opening a new company, that is totally fine as well.
Can Always Set Up More Companies Later
Even though I’d love to work with you in my consulting division on getting more than 1 HK setup, I think it is fair to advise you to do more complex things later. Start with 1 company. If later your businesses are rocking and rolling, you can invest in more corporate structures.
I really advise strongly on writing things down on paper. For yourself, but also for your business partners. Just because you and he/she opened up a company doesn’t mean everything will work itself out.
The contract is more important than the shares in the company! Who will do what? What is the job of each owner. Who is investing cash? How much time will each owner put into the business? These are the hard questions that you need to work out as soon as possible.
Don’t wait until later when you will find out.
Conclusion – Start With 1 Limited Company
So after all this talk – really I recommend just doing all your current business under 1 main limited company. Though I do hope it all is within a certain type of business or industry field. Maybe e-commerce, or services, or manufacturing?
If you do e-commerce, I think it is perfectly fine to have a few e-commerce business lines. Maybe one for tea, and another for handbags. Your core expertise and knowledge is in e-commerce, and your products are just different projects / brands under the e-commerce umbrella.
But if you’re really just exploring what you want to do with your life, and trying some e-commerce, some fashion design, some tourist work – make 1 umbrella company and work hard to find that 1 thing you enjoy doing the most and pays the bills.
Hope this helps – would love comments and feedback in the comments below about how you decided to structure your business!