When you believe you have a great idea, and you have the vision, mentality, and skills to materialize your idea into a product, it is time to set up your startup.
Type 1: Open your company as sole proprietorship. This arrangement is very much like a person is doing business as an entity role/identity. As sole proprietorship, you are liable for all the expenses and all financial issues that may arise on a personal level. Some entrepreneurs believe this type of arrangement is perfect for them, as on the financial terms, they will have to answer to no one (i.e. No other stakeholders). Other startup owners would think this can become too messy for them to handle in a later stage.
Type 2: Register as a partnership. This arrangement is required when you have decided to bring in one or more than one partners into your business. The main reason is that you may be great at developing a product from day one to its launch day, but you probably may not be good at selling the product at all. In this specific case, you may believe you need a partner who have vast connections in the business world who can connect your product with many prospects and potential customers. But there is usually problems on the financial side. The line between personal finance and corporate finance is usually very unclear, unless each partner in the partnership have very well defined all the terms before business commences. When it is not managed properly, it is easy to run into confusion on roles, responsibilities, and liabilities among all the partners.
Type 3:Incorporate a Hong Kong company as a limited company. The arrangement is an upgrade version of sole proprietorship and partnership and still lets you have business partners who are responsible to the actual business. With a limited company, it allows angel investors to provide funding to your business. Eventually when you are to expand your business/product considerably, say from 100 users to 100,000 users the cost is huge. The cost includes the cost to grow and the cost to maintain. The arrangement lets you separate your personal finance (i.e. personal assets) and corporate finance (e.g. company debts).
All startups would need funding in order to grow. Different startups need funding in different times. Funding/capital may be received from venture capitalists (VC), angel investors, or traditional banks. Usually before getting the required funding, the startup owner needs to come up with a very solid business plan in written format. The better version of this is when the entrepreneur has already been building a prototype of the final product. The prototype does not have to be a finished product at this stage. It can be the product that is at stage one of the entire project. The funding would usually be used to pay for new hires, licenses, inventory, research tests, product prototype refinement, product manufacturing, marketing, or other ongoing or one-time expenses. In short, the one main purpose of the funding/investment for a startup is to get a new business off the ground.