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Hong Kong Business Entity Types - Guide

Startupr
28 January, 2022

As one of the world's best monetary markets, Hong Kong is considered to be a top location for setting up a business. In Hong Kong, there are numerous types of entities to adjust that can be adapted to various sizes and purposes behind the ventures. The business entities in Hong Kong can be categorized into private and public organizations, limited by shares, partnership, sole proprietorship, representative office, and branch. Since there are many different types of companies that you can set up in Hong Kong, which is the best entity for you?

Hong Kong Business Entity Types - Guide

Various types of Hong Kong Companies

The first thing to note is: any individual can start a business in Hong Kong. The three most widely recognized Hong Kong business organizations are limited companies, partnerships, and sole proprietorships.

  • Limited Liability Company: Out of all the business entities referenced over, a Limited Liability Company is the most well-known business entity in Hong Kong. Within a limited liability company, the protection of individual assets is provided.
  • Sole Proprietorship: This type of business structure is a limited scale and a generally safe one, which is why the sole proprietorship is easy and simple to set up. However, this business structure isn't something suggested for the business visionaries as it doesn't have a separate legal entity and doesn't secure the owner’s assets from the liabilities of the business.
  • Partnership: This business structure grants at least two individuals to share the responsibility for a single limited organization in Hong Kong, empowering them to share the obligation and even increasing the funds to raise reserves required by the business. In any case, the partners are jointly liable for the deeds of the other partners.

Which Entity Type to Choose?

It can be confusing to determine which type of business is best for you. Nevertheless, your decision will be based on your specific plans and circumstances for your business. Various conditions affect the selection, one of which could be that an individual expects to direct business exercises for the benefit or wishes to raise capital through external investments. Likewise, one should also consider the company’s business nature, size, design, and future plans. These would significantly impact the choice concerning the determination of a business entity. One should consider various factors for this, note that:

  • Incorporating a limited private company is considered an ideal decision due to many advantages that override the ongoing compliance prerequisites.
  • In case an individual needs to construct a small-scale business with the least risks and wants to be the principal proprietor of the organization having sufficient financial assets on hand, it is less complex and more straightforward for them to enroll in the organization as a Sole Proprietorship. In any case, it is essential to take note that the responsibility is limitless, and there isn't any assurance for the protection of personal resources.
  • If an individual wishes to share their business responsibility that is running great, or on the off chance that the individual doesn't have the necessary financial assets, they can choose the Limited Partnership company (which is not the same as a limited organization). The responsibility in this type of organization is still limitless, and can be divided.

Limited Liability Company

A limited liability company can easily be incorporated in Hong Kong by registering the business with the Companies Registry under the Companies Ordinance. It is one of the popular types of Hong Kong companies. Also, note that this business is a separate legal entity from the organization’s members. Two types exist under the Limited Liability Company: public or private companies.

The most preferred type of business in Hong Kong is the private limited company. This is because the liabilities of the owners are limited to the assets that are in the company. Also, as mentioned above, personal assets are protected from business liabilities.

Private Limited Company

Practically all of the medium-sized or small organizations in Hong Kong are set up as private companies limited by shares. This kind of Hong Kong organization is chosen the most as compared to the limited partnership and the sole proprietorship because of its many advantages. The company limited by shares is well known for leading trade and business. Also, this type of company has a share capital which is distributed into a number of shares of a particular value. The shareholders, also called the investors, hold these shares and are entitled to a percentage of the business's profits. The shareholders can also get a dividend corresponding to the respective percentage of the shareholding.

in the organization. If there is any business loss, the shareholders will lose all the investment only up to the number of shares they had put in the organization.

Public Limited Company

A public company limited by shares is incorporated locally. The number of shareholders can be higher than 50 in this type of company. It is referred to as a public company because the debentures and the shares are offered to the public. For the most part, the medium or large private Hong Kong limited liability companies who have accomplished critical development in the market can decide and take their company public.

This is done by growing the shareholder base that they have. A considerable lot of public organizations are put on a public stock trade. The listed or the public institutions are exposed to strict guidelines as the capital is raised from the public. The advantages of this company type are the ease of implementing acquisitions and consolidations, strong public insight, and easy access to capital. The public Hong Kong limited company has disadvantages of the ongoing legal compliance, sharing of profits, costly, complicated, and time-consuming to operate and establish, and public exposure requirements.

Sole Proprietorship

A sole proprietorship is considered the least complex and the most open type of business. The organization is operated by a single individual and the registration for this business entity is somewhat straightforward as compared with the other types of Hong Kong companies. Even though it is the most accessible type of business, a sole proprietorship is normally considered the most dangerous business.

There is no protection of the individual assets from the liabilities and the dangers that emerge from the organization. While the sole proprietor collects all the benefits from the association, they are responsible for the liabilities. Because of this, there is an enormous financial risk, which is why aspiring business people are discouraged from taking up this kind of Hong Kong organization.

Partnership

The partnership is described as the co-claimed organization built by at least two individuals who get together to work on a business with an arrangement of sharing the benefits among themselves. However, every partner in the firm is jointly liable for all debts and obligations that the business incurs.

Limited by Guarantee

The limited by guarantee type of Hong Kong LLC company has no share capital. Rather than the shareholders, the company members embrace the duty to donate a predefined amount to the accounts of the business that grow due to the firm being wound up. This kind of business enjoys a few fantastic benefits; for example, the individuals can partake in the limited liability and protect the control on all the matters, as a rule for affiliation, good cause, or another sort of a charitable association.

Conclusion

Among the Hong Kong business entities types, sole proprietorship and partnerships guidelines are the least complex. Hong Kong company formation is more in demand, and it is necessary to choose a suitable business entity type for your organization. Before pursuing the direction of entering Hong Kong's open-oriented market, entrepreneurs should comprehend their business needs and explore the pros and cons of every entity type. If you are confused about the decision to choose the right type of entity, reach out to a professional for assistance.



About the Author


Startupr

Startupr puts you first. This is why our main focus is Startups with global ambitions. We give you the freedom to build your business while we take care of the tedious, administrative tasks, leaving you to concentrate on your dream for your company. As part of our brilliant service, our back end software will automatically send you reminders of important annual filings, and upload your important document to your online account. startupr.hk

 

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