What to Think Through Before Starting a Business
Author: Junanda ConsultingReviewed by: Junanda Service Team2026-09-19
Registering a company takes only a few days, but the questions left unanswered beforehand can take years to settle. Choosing the wrong business vehicle, building a shareholding structure with hidden problems, or having a registered address that does not match where the business actually operates are all pitfalls with very high remediation costs later on. Before submitting any documents, it is worth working through the key questions across four dimensions: the business, the people, the money and compliance. This article takes them one by one.
Start with the Business Model and Revenue Sources
Before filling in any form, answer a few basic questions. How does the business make money? Is the revenue one-off or recurring? Who are the customers and how long is the payment cycle? Can the gross margin cover fixed costs?
These answers shape every later decision. The revenue structure determines whether the taxpayer status fits. The length of the payment cycle determines how much start-up capital is needed. The type of customer determines whether particular qualifications are required. It is worth producing a rough twelve-month projection of revenue and costs. Even a paper exercise will avoid the uncomfortable position of registering a company only to discover that it cannot sustain itself.
Shareholders, Equity Ratios and Capital Contributions
The most common mistake is the equal split between friends in business together. An even division of equity easily leads to deadlock when a decision has to be made, with neither side able to persuade the other. The articles of association and shareholders' agreement should set out the following in advance:
- Voting arrangements: what voting ratio applies to ordinary matters and to significant matters respectively. The significant matters can be listed, for example external guarantees, capital increases, transfers of equity and profit distribution.
- Dividend arrangements: whether dividends follow the capital contribution ratio, or whether a different distribution order and ratio is agreed.
- Exit provisions: how a shareholder's departure from the company, divorce, death or voluntary exit is handled, and the valuation method to be used.
- Buy-back and pre-emption rights: whether other shareholders have a right of first refusal, and how the buy-back price is determined.
Clauses written into the articles of association carry far greater weight than oral agreement. When a genuine disagreement arises, the cost of resolving it is entirely different for a business with written terms and one without.
It also makes sense to agree in advance the rules on equity dilution when new shareholders are brought in later, including investors and core employee shareholdings. Leaving this to be negotiated at the time of a financing round can easily slow down progress, or even disrupt the financing timetable, because of a dispute over ratios.
The form and timing of capital contributions also need to be settled. Capital may be contributed in cash or in the form of non-monetary property such as tangible assets or intellectual property. Three points matter:
- Non-monetary contributions require valuation and the completion of ownership transfer formalities in accordance with the law.
- A subscribed contribution is not a contribution that need never be made. The contribution deadline should be written into the articles of association and honoured as agreed.
- Contributions that are not actually made, or capital that is withdrawn after contribution, carry corresponding liability risks.
Do not set a very high registered capital simply to look substantial while leaving it unpaid for a long period. The subscribed amount represents the ceiling of the shareholder's liability: the larger the figure, the higher that ceiling.
Registered Address and Choice of Business Vehicle
The registered address determines the competent tax authority, where certain qualifications are registered, and the address for service of legal documents and the channel for annual reporting. Points to note:
- Where the registered address and the actual place of business differ, tax verification and address verification may be affected.
- Where cluster registration or a virtual address is used, its compliance and sustainability should be confirmed to avoid being listed as operating in an abnormal state.
- Once an address is found to be abnormal, it triggers a chain of consequences affecting annual reporting, invoice collection and bank accounts.
The choice of business vehicle is closely connected to the address question, since the vehicle determines the form of liability. The table below sets out the common options.
| Type |
Form of liability |
General characteristics |
| Limited liability company |
Shareholders are liable to the extent of their subscribed contributions |
The most common form, suitable for most business situations |
| Joint stock limited company |
Shareholders are liable to the extent of the shares they subscribe |
Suitable for larger-scale operations or where financing or listing is planned |
| Partnership |
General partners bear unlimited joint and several liability |
Common in investment and professional services |
| Sole proprietorship enterprise |
The investor bears unlimited liability |
Simple structure, but not a legal person |
| Individual industrial and commercial household |
The operator bears unlimited liability |
Suitable for small and micro operations; not an enterprise legal person |
The form of liability and the tax burden differ markedly. Legal person enterprises generally involve corporate income tax, and personal income tax also arises when profits are distributed to shareholders. Partnerships and individual industrial and commercial households generally do not pay corporate income tax, and the investor pays tax on business income instead. The specific treatment is subject to the tax law currently in force.
Taxpayer Status and Business Scope
Taxpayer status needs to match the reality of the business:
- Small-scale taxpayer: the collection method is relatively simple, suitable where business volume is modest and customers do not insist on special VAT invoices.
- General taxpayer: input VAT can be credited, suitable for businesses with substantial input purchases and customers that require special VAT invoices.
The key test is how well input and output VAT correspond. Status can be converted under the rules, but conversion is subject to conditions and time limits and should not be changed frequently.
The business scope needs to cover the actual operations. Where licensed activities are involved, such as food, import and export, or particular manufacturing industries, the relevant licence must be obtained or filing completed first. Otherwise the business ends up able to discuss deals but unable to issue invoices or obtain qualifications.
The two often interact. A business planning to import and export, for example, needs the corresponding wording in its business scope, and the structure of its input purchases will also influence the assessment of taxpayer status. Taxpayer status, business scope and qualification requirements are therefore best considered together rather than decided separately.
Start-Up Capital and Ongoing Costs
Setting up a business involves more than the registration fee. Ongoing costs typically include bookkeeping and tax filing fees, social insurance and housing fund contributions, rent and property management, audit and annual inspection, bank account management fees, and the annual fees for certain licences. It is advisable to set aside at least six months of fixed costs as a buffer, on top of the initial purchases and staffing costs.
Note also that different business vehicles and taxpayer statuses carry different filing frequencies and document requirements, which indirectly affect in-house finance capacity and outsourced bookkeeping costs. Allowing for this in the budget is far more comfortable than discovering later that money is being spent every month on items not anticipated.
Twelve Questions to Answer Before You Start
- How does the business make money, and is the revenue sustainable?
- Who are the customers, and how long is the payment cycle?
- How many months can the start-up capital sustain the business?
- Who are the shareholders, how much does each contribute, and is the split equal?
- How are significant matters voted on, and how is deadlock broken?
- Are the exit route and valuation method for shareholders agreed?
- Are the form and timing of capital contributions clearly set out?
- Do the registered address and actual place of business match, and are they compliant?
- Has the business vehicle and form of liability been thought through?
- Is small-scale or general taxpayer status more appropriate?
- Does the business scope require prior licensing or filing?
- Can the ongoing fixed costs such as bookkeeping, social insurance and rent be covered?
Common Pitfalls
- Assuming a higher registered capital looks better and overlooking the liability ceiling it creates.
- Splitting equity equally without agreeing voting arrangements or exit provisions.
- Choosing the registered address carelessly and later being listed as operating in an abnormal state.
- Counting only the costs of registration and not assessing the costs of continuing to operate.
- Writing the business scope either too narrowly or too broadly, which affects later invoicing and qualification applications.
This article is general business information prepared by Junanda Consulting. Specific policy positions, tax rates, deadlines and procedural requirements are subject to the latest official versions issued by the competent authorities. To understand how these requirements apply to your business, please contact Junanda Consulting for further information and support.
