Before you set up a company, it is essential that you know the different types of business entities in Hong Kong and how they operate, as each entity has diverse characteristics. Choosing the appropriate structure is the most crucial step and should be based on your business objectives.
Outlined below is a brief guide to the Hong Kong entities that you may consider setting up.
The most common business entities
in Hong Kong
Private limited company
A private limited company is the most common entity in Hong Kong for small to medium-sized companies. A company is a private company if it contains in its articles of association the following restrictions:
- the right of its members to transfer the company’s shares is restricted
- The number of its members is limited to 50
- Any invitation to the public to subscribe for any shares or debentures of the company is prohibited. The company is required to have directors and a company secretary. However, there is no restriction on the residence or nationality of the directors.
The minimum paid-up capital is $1 in any currency, and the process for setting up a private limited company is rather straightforward. The company has its own legal identity from its members and the liability of the members to contribute to debts of the company is limited to the amount they agreed to provide as the company’s capital.
Public limited company
A company is a public company if it is not a private company (ie do not have the aforesaid restrictions in its articles of association) or a company limited by guarantee (see below). A public company is subject to more disclosure requirements and restrictions imposed by the Companies Ordinance than a private company.
A public company can be listed or non-listed. Yet before a private company can go listed, it must first be converted into a public company. Shares or debentures of a listed public company are traded on the Stock Exchange of Hong Kong Limited (SEHK). Listed companies are subject to more strict rules and regulations, such as the SEHK Rules Governing the Listing of Securities and the Codes on Takeovers and Mergers and Share Buy-backs.
Company limited by guarantee
A company limited by guarantee is suitable for non-profit organisations as the company’s articles of association restrict distribution of surplus to its members.
A company limited by guarantee do not have a share capital and the liabilities of its members is limited to the amount they undertake to contribute in case of company being wound up.Directors of a company limited by guarantee will fulfil the same legal duties, responsibilities and liabilities as directors of other entities.
A sole proprietorship is a business that is run by one person. Even though this is the easiest and simplest form of business, it is considered as being risky as it does not protect personal assets or provide liability limitations to the owners.Sole proprietorships may also be difficult to raise capital and grow the business as investors are wary about working with non-incorporated entities.
Since sole proprietorships have only one owner, the owner has full control over all business affairs and decision-making.Registration is necessary with the Inland Revenue Department’s Business Registration Office and should obtain a Business Registration Certificate within one month of starting the business. The termination is also easier and less time consuming compared to other business entities.
General partnerships are suitable for two or more partners who have the same business goal and are willing to work together for business success. This entity is easy to set up in Hong Kong.
Every partner will be personally liable for any debts of the business and will be held responsible for actions of another partner as long as the actions were related to the business. Partnerships are easy to establish as there are fewer compliance and statutory requirements than for other entities.
A limited partnership has both general and limited partners. Appointing a local manager is not required unless all the general partners are residing outside Hong Kong.
While general partners have unlimited liability for the firm’s debts, limited partners’ liability is limited to the amount of their contribution to their capital of the partnership. Limited partners are not involved in the management or decision-making process of the partnership, but general partners are responsible for the management and have control over the business.
Foreign/overseas company office
Companies whose headquarters are overseas can establish a business presence in Hong Kong by setting up a branch office, representative office or a subsidiary.
A branch office is not a separate legal entity, and is an extension of the foreign parent company. The foreign parent company is liable and responsible for all the debts of the branch in Hong Kong, and the branch is subjected to pay the same taxes as a company in Hong Kong.
If you want to set up a branch office in Hong Kong, you must register with the Hong Kong Companies Registry as a non-Hong Kong company. Requirements needed to set up a branch office include company name approval, an established place of business in Hong Kong and a local resident authorised representative.Requirements for a branch office include:
- One Hong Kong resident authorised representative is required in Hong Kong at all times to receive or accept legal notices on behalf of the branch. The authorised representative must be a Hong Kong individual or Hong Kong registered body corporate.
- Several documents need to be submitted to the Hong Kong Companies Registry including:
- The Certificate of Registration of the parent entity
- The Memorandum and Articles of Association of the parent company
- The latest accounts of the parent entity
- Identification documents for the local representative of the branch
Foreign companies that want to increase their market and understanding of the Hong Kong business environment can set up a representative office. A representative office does not have an independent legal standing in Hong Kong and cannot engage in business activities. Therefore, the parent company is responsible for the debts and liabilities.
The office must have a Business Registration Certificate under the Business Registration Ordinance and register with the Inland Revenue Department, but there is no requirement for the office to register at the Hong Kong Companies Registry.
The representative office cannot engage in any activities that will generate profit, cannot sign or enter any contracts, sign deals or undertake any trading activities; it is restricted to promotion and liaison activities, conducting market research and coordinating activities for the parent company.
A subsidiary is a private limited company in Hong Kong and has a separate legal entity from its parent company. Therefore, the subsidiary is liable for its debts and liabilities.
A subsidiary is most common for foreign companies as Hong Kong permits 100% foreign ownership, provides limited liability and many tax advantages. The requirements for a subsidiary include at least one director and shareholder, a local resident company secretary and auditor and a local registered address.
Business entities in Hong Kong each have compliance requirements that must be followed. When deciding to set up a company in Hong Kong, you must select the entity that is most suitable for your business goals and objectives. We recommend engaging with Acclime to guide you through the process of registering your business in Hong Kong and ensure ongoing compliance with the laws and regulations.
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