Business owners who are looking to start a business in Hong Kong, have a variety of different business entity types to choose from. However, the most common type of business entity is the private limited company in Hong Kong. This kind of business entity makes up 99% of all the kinds of businesses registered in Hong Kong. The major reason for its popularity is the advantages that come along with this kind of business entity. However, before we delve deeper into its advantages, let’s first understand what a private limited company is all about.
Related Read: What Are the Different Types of Business Entities in Hong Kong? »
What is a Private Limited company?
A Hong Kong private limited company simply refers to a private organization that is limited by shares and that has the right to carry out business. It is a legal business entity that is separate from its shareholders. It is also known as a limited liability company, a limited company, or a private company limited by shares.
This type of business entity has different requirements and obligations from those of sole proprietorships or partnerships. One of its key characteristics is that it carries out its business activities in its own right. Simply put, this means that all of the company’s assets, liabilities, and profits are separate from the shareholders and directors of the company.
In private limited companies, the company shareholders are limited by their shares. Therefore, in the event of any losses incurred by the company, or if the company is ever to be wound up, the shareholders stand to lose only up to the number of their shares.
How Is A Private Limited Company Structured?
The basic requirements for any Hong Kong private limited company are as follows:
The number of shareholders must be 1 to 50 in number, and can be drawn from residents of Hong Kong, foreign individuals, or even international corporations.
Minimum of one director
There is no limit to the number of directors a Hong Kong private limited company can have. The directors of the company can be both foreign and local individuals. In Hong Kong, it is not a requirement that there must be at least one local director.
The company secretary must be a resident of Hong Kong. However, if the Hong Kong company secretary is a professional company, then the company would need to have a valid TCSP license that is normally issued by the Hong Kong Companies Registry.
Related Read: The Importance of A Company Secretary for your Hong Kong Business »
Advantages of a Hong Kong Private Limited Company
1. Limited Liability
Under this type of business entity, the shareholders are not required to pay off any outstanding debts and costs incurred by the company from their assets. Therefore, if the company were to fall into trouble, the business owner will not be held liable. All your assets would remain untouched.
However, this is not the case with sole proprietorships or partnerships. Under these types of business entities, the business owners will have to give away their assets and money to pay off the company debts.
2. Shareholders are Protected
The company’s financial obligations can impact the company shareholders only up to the number of their shares. This ensures that your shareholders are protected in case your company incurs major losses.
This characteristic also serves as an incentive to potential shareholders to invest in your company. They are comfortable in the knowledge that they stand to lose only what they have put into your company and nothing more.
3. Easier to Raise Capital
A Hong Kong private limited company is the preferred business entity if you are looking to raise funds for your business. Once your business has been incorporated, you have the option to raise more capital for your business by issuing shares to new investors. And then, depending on the kind of rights you have given to varying levels of shareholders, you can split the shares into different categories. It is also easier to access bank loans under this kind of business entity.
4. Ease of Transfer of Ownership and Perpetual Succession
Unlike in partnerships or sole proprietorships, the Hong Kong private limited company will continue to thrive even after the sudden demise of its owner or directors. The partial or complete transfer of ownership of the company can be done simply by selling some or all of its shares or by the issuing of new shares to new additional investors. All the while, the business can continue to run while these processes are underway as they are straightforward to do.
5. Attractive Tax Regime
A Hong Kong private limited company is entitled to several tax benefits. The corporate tax is at 16.5% of the assessable profits.
Hong Kong also adheres to a territorial basis of taxation. This means that under this kind of business entity, only the profits that are derived from Hong Kong are subjected to taxation.
Additionally, as a business owner, you will not be required to pay any VAT or sales tax, capital gains tax, or withholding tax on your dividends and interest.
Related Read: Guide to Taxation in Hong Kong »
6. Fast Incorporation Process
It takes only a few hours to successfully set up and incorporate a Hong Kong private limited company. You could also decide to enlist the services of a company formation firm to open the business on your behalf.
In Hong Kong, it is permissible for a private limited company to be fully or partially owned by a foreigner or a foreign business entity.
Related Read: How Does a Foreigner Start up a Business in Hong Kong? »
8. Business Name Protection
After you have successfully incorporated your Hong Kong private limited company, your company name will be protected as well. Any company that will register after yours will not be permitted to use a name identical to your company name.
Therefore, we see why private limited companies are popular in Hong Kong. At Hong Kong company registration, we offer various company incorporation packages that effectively meet your business needs. Kickstart your company registration for your private limited company today!
- What are the basic requirements of incorporating a private limited company?
- These are the following requirements that a private limited company must fulfill:
- 1 to 50 shareholders
- Minimum of 1 director
- 1 Company Secretary (must be a Hong Kong resident)
- Do shareholders in a private limited company have limited liability?
- Yes, private limited companies in Hong Kong have limited liability. This means that shareholders are not obligated to pay off any outstanding debts and costs beyond the number of shares held.
- Can foreigners have 100% ownership of a private limited company?
- Both foreigners and foreign business entities are allowed to have 100% ownership of a private limited company.
- Are private limited companies in Hong Kong subjected to annual audits and filing returns?
- Once you have incorporated your private limited company and have begun business operations in Hong Kong, you will be required by law to prepare annual audited accounts. Also, you will be required to file your annual returns with the Company Registry and file annual tax returns with the Inland Revenue Department.
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