When looking to set up your company in Hong Kong, the first and most important step is to find the right structure for your company. You should ask yourself what the pros and cons for each business entity type are, and following factors before deciding:
- The nature of your business
- The size of your business
- What risks does your business include
- The level of control you wish to have relating to your business
- Liabilities that may come with the chosen business structure
- Start-up costs and expenses including the timeline and other requirements
- Capital required to start your business
Entity Type: Limited Liability Company
A limited liability company is the most widely used and preferred by foreign investors. This is because the limited liability company is a separate legal entity from its shareholders, with shareholder liability limited to the amount of subscribed shares.
Companies incorporated are registered with the Companies Registry who handle company related service and regulates the Companies Ordinance.
It can be formed as a private limited company, a public limited company or a public company limited by guarantee.
Private limited company (Private Company Limited By Shares)
This type of company is common for small to medium sized companies and the most popular for those conducting business and trade.
- A company is required to have at least 1 director.
- Directors can be a natural person or a corporate director.
- At least one director MUST be a natural person.
- Local directors are not required.
- No restriction for the appointment of nominee directors.
- A company is required to have at least 1 shareholder.
- Shareholder can be a natural person or a corporate shareholder.
- There is a maximum number of 50 shareholders allowed.
- No restriction for the appointment of nominee shareholders.
A company is required to have a company secretary who must either be:
- A natural person who is a Hong Kong resident and above the age of 18 years old or;
- A TCSP licensed company with a registered address in Hong Kong.
It is important to note that if a company has a sole director, this person cannot act as a company secretary at the same time.
Public limited company
This type of company is suited for medium to large sized private companies or companies who are expanding significantly in the industry, and have shareholders that exceed more than fifty.
Shares and debentures may be offered to the public so these companies are usually listed on the Hong Kong stock exchange and are subject to more compliance and regulations.
Public company limited by guarantee
This type of company is suited for charities, societies or clubs. The company has members, rather than shareholders, no minimum share capital, and members contribute a predetermined figure to cover the liabilities of the company.
Entity Type: Sole Proprietorship
This type of company is suited for individuals who wish to do business on their own or have a small scale business. The individual is the sole owner and investor but is liable with his or her assets for the losses and debts.
This is the most accessible form of business in Hong Kong, with easy and simple registration, lower cost of setting up, lighter tax reporting requirements, and easy to terminate.
Entity Type: Partnership
A partnership is formed when there are two or more individuals who co-own the business and share profits. Partnerships are considered easier to maintain when comparing to limited liability companies as the incorporated entity is not separate from its partners.
- Regulated by the Partnership Ordinance in Hong Kong which states that each partner has a fiduciary responsibility to the partnership.
- Partnership agreement/mutual agreement amongst the partners need to be in place.
It is important to note that all partnerships are considered as general partnerships unless they complete registration under the Companies Registry to become a limited partnership.
What is a partnership agreement?
The partnership agreement outlines the terms and responsibilities of the partnership. It contains how profits are to be shared including any decision making powers.
- Regulated and formed under the Partnership Ordinance.
- Not considered a body corporate nor a joint company.
- At the time of registration there is no requirement for fixed share capital.
- A general partner has unlimited liability from the company’s debt.
- Responsible for the day-to-day running of the business.
- Regulated under the Ordinance of Limited Partnership.
- Registered with The Companies Registry.
- Includes one or more persons called limited partners and one or more persons called general partners.
- Limited partners are not allowed to participate in the partnership management and their liability is limited to the amount of their unpaid share capital.
- The general partners has the power to make decisions relating to the business operations and has unlimited liability for the company’s debt.
Entity Type: Subsidiary Company, Representative Office, Branch Office
For those who already have a company established and are looking to set up a base in Hong Kong have several options regarding the right business entity.
- A private limited company established as an asset of a foreign company.
- Considered a separate legal entity from its parent company and is liable for its own debts and liabilities.
- Accounts are not required to be filed and published on any public record.
- Parent company is liable for the debts and liabilities of the Representative Office.
- Required to obtain a Business Registration Certificate.
- Not permitted to be involved in trading activities, enter legal contracts on its own, sign deals or negotiate on behalf of the parent company.
- A Branch Office is regarded as an extension of the parent company.
- Not considered a separate legal entity from its parent company who is liable for the debts and liabilities of the Hong Kong Branch Office.
- Required to register at the Companies Registry.
- Companies choosing to open a Branch Office must register as a non-Hong Kong company with the Companies Registry in Hong Kong.
- To terminate a Branch Office the process is quite simple through notifying the Hong Kong Companies Registry that it has ceased all operations in Hong Kong.
This information is provided for general reference only, if further advice is required, please contact us at A-PASS and we will be pleased to assist.