Today was a big day in terms of figuring out the corporate structures. I talked a number of people, the team out of Hong Kong, Friends that have companies in China to really get the feeling about why certain structures exists.
I also mapped out my entities and their functions and it became quite clear that the various entities are performing multiple functions. So, I see a long list of constraints and optimizations:
Facts that play into corporate structures:
1. Functions the company need to perform – i.e. hire people, export, purchase, etc.
2. Banking – where a company can have a bank account. This is especially important in ecommerce as many constraints come into play simply based on payment gateways i.e.. Google Checkout will only remit to a US based Company and US based bank account. So, if one wants to use Google Checkout – hello new “US LLC’ and “US Bank Account’”. So, banking, payment gateways are important.
3. Tax efficiency – some countries have different tax incentives for different things – so this is an optimization process where you would really want to have the companies perform the functions in most efficient countries. For example, China is good on labor costs, but horrible on monetary trading, and banking – hence China is perfect to be a fulfillment, manufacturing center – BUT you would never use a Chinese company for a FAST startup where a credit cards are needed, payments need to be made in 24 hours, etc.
Beyond this, from the strategic place, one needs to think about the companies and the building of credit capabilities for the companies. For example, again due to Banking, BVI companies have a hard time getting Lines – BUT an HK company has much easier access to build credit and open a line. BVI is virtually tax free with HK carrying some taxes – BUT if BVI cannot get Lines, HK can, then the tax implications could me much smaller compared to the ability to get business Lines. So, this is economics 101 BUT constraints through Banking.
So, after all this I’m thinking the following:
1. Keep my CN company as a manufacturing/export company
2. Open up a new CN company as a high-tech R&D company
3. Focus all US based actives on PearlsOnly Americas
4. Perhaps open up a UK based entity for UK operations (this is yet to be decided on some payment gateway quotes I’m getting – but potential switch from current payment gateway to a cheaper one could pay for the company and some in less than 6 months. So, here is the case where banking is driving opening up of companies)
5. Open up a new HK entity that will hold the CN companies
6. Focus BVI on holding the Intellectual Properties, and other IP stuff.
With the above structure - the HK holding company – could then be the vehicle to IPO, equity, etc – all while developing credit rating in HK.
Here is some some of my’back of the napking’ drawings.