'Instead of looking for a full-time job, I decided to freelance,' she said.

After dabbling in editing and copywriting for a few months, Ms Ross decided that for legal, accounting and tax purposes, she should formally set up a business. She also decided to apply for permanent residency in Hong Kong.

'I went to the Business Registration Office, filled out the forms and paid the money,' she said. 'I decided on a sole proprietorship, which was simple, quick and cheap. I didn't think I could afford the cost of setting up a limited company.'

Entrepreneurs such as Ms Ross have three choices when setting up a business in Hong Kong: a sole proprietorship, a limited company or a partnership. The first two can be set up individually while partnerships need at least two people.

'Risk is one of the key factors in deciding between a sole proprietorship and a limited company,' said chartered accountant Suzanne Liu Duddek.

'If you think you might be sued, you should set up a limited company. This is especially true if you are dealing with Americans or working in industries such as financial planning or construction, where lawsuits are common. Then you would want liability protection.'

If the chances of being sued are low, it is better to opt for a sole proprietorship or partnership, which is less expensive and easier to run.

The fee for a business registration certificate for all three types of business is $2,600 a year, with an additional $673 for any branch office. However, according to Ms Liu Duddek, owners can apply for exemption if their average gross income does not exceed $10,000 a month for a service company or $30,000 a month for other types of business.

There are differences other than liability between the three types of business. In a sole proprietorship, the owner contributes the capital, takes all the profits and bears all the risks. A partnership can have no more than 20 partners, except for certain professions. Limited companies are separate legal entities that offer perpetual succession and are able to borrow money and own assets.

Sole proprietorships and partnerships offer some advantages. No audits are required, profits are taxed at just 16 per cent and owners can opt for a personal assessment. In the case of limited companies, the tax on profits is 17.5 per cent and there is no personal assessment option.

Of course, sole proprietorships and partnerships have some disadvantages too. Both involve personal liability, so when a sole proprietor dies, goodwill can easily be lost. Also, there can be problems in selling the business.

'The name of the business is not unique and the salaries of sole proprietors and partners, or interest on capital, are not tax-deductible,' Ms Liu Duddek said.

There is another important issue that anyone without the right of abode in Hong Kong should consider: the type of entity registered may have an effect on the application for a business investment visa.

Stephen Barnes, managing director of Emigra Asia, a business immigration consultancy, said: 'The proposed business activity [has] to satisfy the criteria of the investment approvability test, which the Immigration Department applies to every application.

'The main thing is to decide if the business will be of substantial benefit to Hong Kong.'

While many people opt for sole proprietorship, this can send out wrong signals. It can give the impression that the person is not fully committed to the venture, or that there are not enough resources to make it a success. At times, it is also perceived as not offering a substantial benefit to Hong Kong.

'Your choice does say something about the nature of the planned business,' he said. 'If the Immigration Department believes your application is marginal, in certain cases, a sole proprietorship can tip the balance against you.'

However, if a candidate passes other parts of the approvability test, a visa can be secured irrespective of the type of business registered.

The department also examines the source and amount of capital to be invested, the local jobs being created, the scope of the intended business and whether the business owner has relevant experience.

'You should focus on your current status in Hong Kong,' Mr Barnes said. 'For example, if you are a visitor, it is more difficult to obtain an investment visa than if you have been employed here for four or five years. The Immigration Department tends to be more sympathetic to someone with a track record than those who are fresh off the boat.'

Changes, though, are under way. A new scheme has been announced to attract professionals and entrepreneurs from the mainland and overseas to Hong Kong.

There will be an initial annual quota of 1,000 people and the scheme could be implemented by June this year.

How it will work is open to speculation but it should provide a new avenue for investors looking to relocate and establish a business.