This article is orginally found here: https://www.globalfromasia.com/testing-before-incorporating/
Can You Do A Trading, Import / Export or E-Commerce Business With Incorporating?
Just getting started out in your international business? Confused what the right steps are for making business moves?
Then today’s guide is just for you!
I love getting questions from readers. It keeps me “sharp” as to what the market is looking for. Below one of my Hong Kong Supercharged Video course students asked:
I don’t have capital ( to much money to start) how can i start trade in hong kong or Vietnam, i take a look detail \your course, it doesn’t have some thing like try out or testing the water. can you give advice?Minh Duong
Of course with any answer to complex and huge questions the general answer is “it depends” – but let me give a few different ways you can go with this and let you determine the best for your situation.
Option 1: Not Much Money or Experience – Just Start Selling!
Sure, I make money if you open a company (I’m a partner in a HK CPA firm). But I don’t advise potential clients to invest money in the incorporation if they aren’t even sure this is the business they want to do.
It makes me think back to when I first started selling online in 2004! I was living in New York City and working full time at Deutsche Bank. I got all excited about selling online and bought a shopping cart technology. When I got the software, the company didn’t care if I had a company registered. When I bought a domain, got hosting, setup Google Adwords – none of them cared if I had a company. Opening an Ebay account, didn’t matter either. I had a business partner, Andrew, but we trusted each other and I used a dedicated credit card to keep track of the business expenses to separate my personal expenses from it.
We started selling online – mostly on eBay, but some on our own website (Google Adwords was amazing back then!). It was all going to me personally, and I kept track of the sales in an Excel spreadsheet and let my business partner Andrew see it all.
Option 2: Setup the Company First, With Idea It’s an “Umbrella Corporation”
So, you may still want to have a company. Maybe your business partner(s) don’t trust each other as much (which is a red flag, but let’s move on) and want to see all the financials in a shared account. Or you want to make sure to keep your business and personal matters totally separate. We will talk about limiting personal liability later on today, so I’ll hold on the reasons until later.
I normally say “Umbrella Corporation” because you are just starting out in e-commerce and international trade. You may not know if you will end up finding your niche in carpenter supplies or baby butt medicine. So if you name your whole company around the carpenter supplies concepts and then pivot to baby butt medicine – if you named your company “Nail It Shut Limited”, parents buying your new baby butt medicine may get a bit concerned. For more concepts and strategies on choosing a company name – we have a whole guide here.
So what many of our clients and members at GFA do is pick a broad corporate name. For example, even at Global From Asia – the parent company (Umbrella) is called Shadstone Limited. It owns Global From Asia, as well as a wide range of other businesses. Kind of call it our Asia holding company.
So if you do insist in registering a company before starting to do business – I’d say to keep the company name separate from the product brand.
Testing the Waters
So let’s say you are doing things in your personal name to start. Just keep in mind, some policies may change at the places you set up accounts. For example, you probably want to get started by selling on Amazon. You can signup and sell as an individual – and depending on your goals and targets – it could be a great way to get started.
I love to see people taking action and learning. Especially in e-commerce – you will almost always get your first set of products wrong. The wrong style, the wrong category, etc. That is why it is always advisable to start with a small run of inventory and see what happens. Same is true with any business – do good customer development, know what your customers want – keyword research, surveys, pre-orders, ad campaigns to opt-ins. Anything you can do to limit your upfront investment in something before seeing customer demand and reactions.
But there are some issues with starting as an individual and then setting up the business later.
Converting Accounts from Personal To Business Later
Each account you setup in your personal name, you may or may not have a hard time switching it to your company that you form later. This is why a lot of people go ahead and get a company established before starting a new Amazon business – they want everything done in the company name from the get go and no hassles later updating.
So, you have some options.
If you start selling as an individual, you could just leave those open and open new accounts for your business. This way, you have a “backup” (always smart in e-commerce world) accounts to test with or use later if your business has issues or is sold later. Of course the drawback is you would not use any of the value or trust built up in those individual accounts for your new business.
So it depends on how developed your individual accounts are – and if they have any “value”.
If they are valuable – you’d want to do your best to convert them into your business name.
Limiting Your Personal Liability
Here is probably the biggest advantage or reason of having a company. Think of it like having a baby. Except this baby is more like a shield. You load up the shield with some strength or energy (I’m feeling like a World of Warcraft dude now) that can endure certain issues.
The only thing is – if the shield is fully depleted – any further damage is no longer possible. You won’t be hit by the oncoming shots.
In corporate terms, this is called a “corporate veil”. It means that if there is a lawsuit, or a trade claim, or any kind of negative event that happens to the company, that will not pass down into the personal owner’s savings / liability.
Let’s talk about another story.
Remember when I was starting out in 2004 selling online? So one of my products was a lemon squeezer, a decent selling product. Sold for 4.99 USD plus shipping and handling (made more off shipping I think, ha!). Times were good, we were selling, reordering, selling more. Everyone was happy.
Until one eBay message. It was a woman from somewhere in Midwest America. She said that the spring broke in the squeezer and cause the device to gash her palm open. She sent a photo of her bloody hand. She was outraged about the product and demanded an explanation.
My heart sunk.
As a gut reaction, I offered her a full refund on the product and shipping fee and would send another if she wanted.
She was so happy! She took the offer and gave us a 5 star positive review on eBay that we were amazing.
It could have gone a lot worse. Some of my friends, and I believe I called talk show radio host Bruce Williams about it as well, said I could have gone bankrupt over it. We didn’t have a company setup yet and it was all in my personal name and personal bank account. She could have sued us, or even threatened, and I either would have to settle or go to court.
So, that was a reason we moved to setting up a company immediately. If this happened in the company name, and it went to a lawsuit, it still would have sucked, but then the liability is in the company name – and if it took all the money from the company, and still needed more, it would make the company go bankrupt (or get money from somewhere if we wanted to keep the company going) – but not make us pay personally.
But don’t be negligible. It’s not a license to make products that hurt people and get away with it. If it is found out you are a “bad human being” (to make this simple) then you will still be personally responsible and liable. The purpose of the corporate veil is to encourage entrepreneurship to take a risk and make a new venture. To not have to risk “everything” (though often entrepreneurs are!) and be able to protect their personal assets and self from the risks a new business venture takes on.
How to decide if you should protect your personal liability sooner than later?
Well, a business consultant would tell you to protect yourself immediately. Of course that is in their own self interest, and maybe yours too. Yet, it isn’t always so straightforward. First, I would look at the product I am selling, and the market I am selling to. If it a product (or service) that is risky and could create legal issues with health and safety? Or any other risks of lawsuits or other issues?
If yes, well, hopefully it has an equal chance of making you a lot of money! But besides that, then I would advise you separate your personal assets from the business as soon as possible! But if you are doing a business that doesn’t have a high chance of a lawsuit coming, or high risk of legal cases, then test the waters more.
Another Reason To Start With a Personal Account – Banking Accounts Are Hard to Open Now
The world is a crazy place now. The challenges in opening a bank account in Hong Kong and other parts of the world have forced a lot of business entrepreneurs to use their personal name and personal bank accounts.
In order to be approved for a business bank account, the bankers are asking for a stack of business proof. But isn’t this a chicken or the egg situation? How can you have business proof if you can’t do business with a business bank account?
So, this forces people to use their personal bank account to get the ball rolling. Build up business proof and then provide that to the business banker.
Or stay in your home country – where your home country will know you and your personal background more than an international bank in places like Hong Kong.
So What Do You Think? Personal To Start, Or Incorporate Right Away?
I hope today’s guide gave you some insights on testing the waters using your individual name and account versus jumping right into setting up a new company.
But I’d love to hear your insights and perspectives in the comments below!
Overall, I think it’s OK to use your personal name at the beginning. Just by being aware of the liability issues will probably have you thinking more responsibly, which is important in building trust as a business owner.
Good luck to all!