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Product liability is another major issue to consider, when acting as a sole proprietor. As a sole trader, you don’t have the protection of limited liability. In fact, you have the opposite. Unlimited liability.
Picture that something would go wrong.
For example, that somebody is injured by your product. In that case, you could be held liable for tens of thousands of dollars (or more) in damages.
Indeed, limited liability is not a license to get away with severe violations of the law, but it does make a big difference if you would ever find yourself in a bad situation.
Are manufacturers in China willing to work with individuals?
Keep your legal status to yourself, and focus on the business.
You can definitely start the product development and supplier sourcing process, sometimes even the sample order process, without having a registered company.
Hence, the company registration process is not a good reason to delay the process.
In fact, you should start the process as early as possible, and if you don’t have a company registered at this point, deal with that later.
A common mistake that I see, and perhaps the reason why I decided to write this article, is that many Entrepreneurs wait for weeks, sometimes months, before the company and all trademarks are registered.
That’s fine, but it’s not an excuse to hold off on product development and supplier sourcing. It can easily take several months to find the right supplier, and you will lose precious time if you wait for your papers to be in order.
Papers that, frankly, only you care about. At least at this stage of the process.
At what stage should I register a company?
You should definitely register a company before you and the supplier sign the sales contract.
But, as I already mentioned, it can take months – or even a year – to get to that point. Get started as early as possible, and don’t let the incorporation process slow you down.
That said, the incorporation process is relatively fast and easy in many countries, and can even be done online. What used to be a tedious procedure is now reduced to something you can do in less than an hour.
I think this is more of an issue in developing countries, where the setup process can take months, not days.
In which country should I register a company?
You should register the company in your country of residence. At least if you are a startup company.
While it may be tempting to set up a company in a place with lower taxes, such as Hong Kong or the BVI, you will in the end pay taxes based on your own residency – not that of the company.
Offshore setups are expensive to set up and maintain, and only make sense for established businesses.
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Co-founder of Asiaimportal (HK) Limited and based in Hong Kong. He has been quoted in and contributed to Bloomberg, SCMP, Alibaba Insights, Globalsources.com, China Chief Executive, Quartz Magazine and more.
Hey there, I’m Fredrik!
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