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15 FAQs you must know about law affairs in startup

Career and Study


The followings are the 15 FAQs that you must know:

1.  What are the characteristics of sole proprietorships, partnerships and limited companies? What are the advantages and disadvantages of each type of business?

Ans: A sole proprietorship is a business that is run by a single individual who makes all the decisions, although the proprietor may engage employees. The sole proprietor is personally entitled to all of the profits and is responsible for any debts that the company incurs... (read more)

2.  Do I have to obtain a licence(s) from the Government for my business?

Ans: An appropriate food licence must be obtained from the Licensing Office of the Food and Environmental Hygiene Department to run a general restaurant, light refreshment restaurant, seafood restaurant, bakery, cold store, factory canteen, food factory, fresh provisions shop, frozen confectionery factory, milk factory or "siu mei" and "lo mei" shop... (read more)

3.  Are there any legal stipulations about human resources management that apply to running a business in Hong Kong?

Ans: Implied rights concerning rest days, holidays, maternity leave, dismissal with notice or wages in lieu of notice, severance and long service payment. Implied rights are rights that are granted to employees even if they are not expressly stated in their contract of employment... (read more)

4. What are "personal guarantees" and "bank guarantees"? When will I be required to provide these documents to other parties in business transactions?

Ans: In a business transaction, if a party (e.g. the buyer) is either unwilling or unable to pay in advance, or if that party is a limited company and its creditworthiness is unknown, then the other party (e.g. the seller) may require some form of guarantee of payment... (read more)

5. How can I set up a sole proprietorship, partnership or limited company? Do I have to obtain a business registration certificate from the Inland Revenue Department and register with the Companies Registry before commencement of business?

Ans: The Business Registration Ordinance (Cap. 310 of the Laws of Hong Kong) requires every person who runs a business in Hong Kong, whether it is a sole proprietorship, partnership or limited company, to register the business at the Inland Revenue Department within one month from the date of commencement of business, and to display a valid Business Registration Certificate at the place of business... (read more)

6. What are the basic requirements for making a valid contract?

Ans: A valid contract normally contains the following five basic elements: (i) Intention to create legal relations. It is generally presumed that in a commercial transaction, the contracting parties must have the intention to create a legally binding contract. In other words, if you have signed a contract for business-related activities, then you will be able to sue the other party if that party does not fulfil the contractual provisions, and vice versa.... (read more)

7. What are the other important matters that the parties should note when making a contract?

Ans: Normally speaking, a third party cannot sue or be sued regarding a contract, and only the parties to a contract can rely on the contract terms to take legal action. However, there are some exceptions to this principle, such as... (read more)

8. If one party breaches a contract term, what can the other party do? What are the possible liabilities of the defaulting party?

Ans: The first issue is whether the contract violation is a breach of condition or a breach of warranty. A condition is a central (major) term of the contract. If a party breaches a condition, the other party has the right to be discharged from the contract and to claim damages (compensation). A warranty is a minor term. Breach of a warranty by a party gives the other party the right to claim compensation, but not to be discharged from the contract... (read more)

9. To avoid certain liabilities, some business people insert exemption or exclusion clauses into their contracts. Are these contract terms valid under the law?

Ans: Exemption clauses are used to avoid liability when things go wrong. Such clauses are not always effective, and are regulated by the Control of Exemption Clauses Ordinance (Cap. 71 of the Laws of Hong Kong). Exemption clauses that exclude liability for death and personal injury are usually not effective... (read more)

10. What if I need to use a middleman (such as an agent) to act on my behalf to negotiate for business or enter into contracts with others. What should I be aware of in such kinds of business dealings?

Ans: When a person or company sells products through sales agents, that person or company (as the principal) is liable for any contracts that are entered into by its agents, and may be sued on these contracts. The agent, who is not a party to the contracts, is generally not bound by the contracts between the principal and the other party. However, the agent may be personally liable if he acted without the necessary authority (did not act according to the principal's instruction)... (read more)

11. What should I be aware of before making a contract with others through the Internet?

Ans: According to section 17 of the Electronic Transactions Ordinance (Cap. 553 of the Laws of Hong Kong), contracts can be made by means of electronic records (such as e-mails) unless otherwise agreed by the contracting parties. In addition, electronic records that can be accessed for subsequent reference are allowed as evidence in court proceedings, except those that are set out in schedule 1 to the Electronic Transactions Ordinance (which include wills, power of attorney, contracts for sale of land or real estate and mortgages)... (read more)

12. Do I need to engage professional advisors or registered agents to set up a company in Mainland China?

Ans: Depending on the business sector and the size of the potential investment, a Hong Kong investor may choose to engage professional advisors to give advice on the relevant laws and regulations, market analysis, contract drafting and negotiation. A PRC lawyer, accountant or other registered agent, such as the local international trade development committee or a foreign services company, can be engaged to carry out registration matters and applications for approval or licences... (read more)

13. What licences or approval must I obtain to run a small or medium-sized business in Mainland China?

Ans: The most common licences or approval that must be obtained from the Mainland authorities are as follows: The approval of the State Administration for Industry and Commerce (SAIC) or relevant local administration of industry and commerce must be obtained for the name that is chosen for the foreign investment enterprise (FIE). Please note that all formal foreign investment in Mainland China, including those of Hong Kong companies and individuals, are called "foreign investment enterprises"... (read more)

14. To which aspects of taxation should I pay attention when running a small or medium-sized business in Mainland China?

Ans: The PRC Income Tax Law for Foreign Investment Enterprise and Foreign Enterprises 《中華人民共和國外商投資企業及外資企業所得稅法》 states that foreign firms are liable for the following types of taxation. (a) Corporate income tax. Some important notes are that gains which arise from the disposal of an FIE's assets are generally included as part of its taxable income, although wear and tear allowances are granted on fixed assets and other capital assets that are used in the production of income... (read more)

15. What is a trademark? How to apply to register a trademark?

Ans: A trademark is a sign that distinguishes the goods and services of one trader from those of others. Typically a trademark can be words (including personal names), indications, designs, letters, characters, numerals, figurative elements, colours, sounds, smells, the shape of the goods or their packaging or any combination of these. A sign must be capable of being represented graphically in order for it to be registered as a trademark... (read more)

(Extention: Startup)

(Source:Community Legal Information Centre – Business and Commerce)