Hong Kong is known as one of the most desirable financial markets the world over. Consequently, it is steadily becoming the destination of choice for most business people. Hong Kong has developed non-intervening government policies and a trustworthy political environment along with free trade and a free enterprise economy. All these, coupled with a business-friendly legal system and tax approach, have contributed to attracting businesses and companies numbering into the millions into Hong Kong.
However, before you consider setting up your business in Hong Kong, you will need to decide on the kind of business entity appropriate for your business idea.
Related Read: Your Detailed 2021 Hong Kong Business Incorporation Guide »
Types of Hong Kong Business Entities
1. Limited Liability Company in Hong Kong
Compared to other business entities, the limited liability company is the most popular choice for businesses within Hong Kong. This is because, under this category, the business owners’ personal assets are protected from liabilities and business risks. The business is operated as a separate legal entity from the owners of the business.
There are two types of limited liability companies.
- Private limited company: this is the preferred structure for most medium-sized to small companies. The company that is limited by shares is popular for conducting business and trade. Also, this business entity distributes its share capital into several shares or a specific value. The owners of the business, also known as the shareholders, then hold these shares and share the business profits.
- Public Limited Company: This business entity is similar to the private limited company, the major difference being that the business shares are offered to the public. In most cases, only after a medium or large limited liability company achieves substantial growth in the market can they decide to expand their shareholder base and take their company public.
2. Sole Proprietorship in Hong Kong
This is one of the easiest and simplest types of business entities in Hong Kong. Under this business entity, a business is owned and operated by a single person and is not a separate legal entity from the owner. Simply put, the business and the owner are considered as one.
3. Partnership in Hong Kong
In this kind of business entity, the business is co-owner and established by 2 or more people, up to a maximum of 20 people, to share the profits gained. There are two types of partnerships:
- General Partnerships: Where each partner in the business is personally liable for the liabilities and debts of the business. Also, each partner is held responsible for the actions of other partners in the business, provided these acts were carried out in the course of the business partnership.
- Limited Partnerships: Where each partner’s liability is limited only to the amount of their share capital that is unpaid. Also, the limited partners do not participate in any way in the management of the company.
4. Branch Office in Hong Kong
In Hong Kong, a branch office business entity is an extension of a parent company. The parent company could be within Hong Kong or outside Hong Kong. The parent company has full liability for the obligations and debts incurred by the branch office as the branch office has no ownership rights.
Suppose the parent company of the branch office is a foreign corporation from outside Hong Kong. In that case, the branch office must be registered with the Company Registry to secure a certificate of registration. All branch office registration is performed at the Hong Kong Inland Revenue Department.
Related Read: How to incorporate a subsidiary company in Hong Kong »
5. Representative Office in Hong Kong
This business entity is also known as a liaison office and is designated for companies or businesses where the parent company is outside of Hong Kong. The representative office has the same name as the parent company and is not authorized to carry out business activities within Hong Kong. The major activities carried out at the representative office are market research, advertisement, and promotion.
- What are the advantages and disadvantages of a Hong Kong Limited Liability Company?
- Due to the distinction of limited liability companies from its owners, the company is free to acquire assets, enter into contracts, go into debt, or be sued in its name. The shareholders of the company will not be held responsible for paying off its debts.
- The company shares can be transferred or the shareholders can change without affecting the business operations.
- It is complex to close this kind of business entity in comparison to other structures.
- It is more expensive to maintain and form when compared to other business entities such as partnerships and sole proprietorships.
- Every year, the company will be required to carry out compliance obligations with the Inland Revenue Department and the Companies Registry, which significantly increases the amount of work for the management.
- What are the advantages and disadvantages of sole proprietorships in Hong Kong?
- It is simple to establish
- It is easy to make decisions, as the owner does not have to seek approval from anyone else before making a decision.
- The business owner does not have to share the business profits with others.
- It is easy to terminate this type of business venture.
- As the business is not considered a separate legal entity from the owner, the owner will be held responsible for all liabilities and debts incurred by the business.
- The only source of capital for a sole proprietorship is from the business owner’s finances.
- What are the advantages and disadvantages of establishing partnership companies in Hong Kong?
- Because all partners are liable to the obligations and debts of the business, all the partners are highly motivated to ensure that the business delivers excellent services and/or products.
- The procedures and costs of registering and maintaining the business are relatively low.
- The partnership structure is relatively flexible as it can easily expand and permit others to join the partnership.
- The partners are personally liable for all the business obligations unless in the case of a limited partner.
- The profits will have to be shared among the partners.
- The decision-making process is lengthy, as all decisions must meet the approval of all the partners, especially in the case of a general partnership.
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