Looking for company formation in Hong Kong and wondering what do you need to know? When an individual decides to start a business, there are many questions they must address. Besides deciding upon what activities their business will involve themselves in and how, business owners must also consider what is the most appropriate company structure for their venture. Given the ease of incorporating a company in Hong Kong, it is clear that business owners have a variety of options available to choose from. In this article, we look to provide guidance on the various company types in Hong Kong and the unique traits associated with each one.
1. The different company structures in Hong Kong
A limited liability company is the most common company type in Hong Kong. These companies offer shareholders protection for their personal assets from business risks and liabilities as the company will be recognised as a separate legal entity from its shareholders.
Limited liability companies can be categorised between those limited by shares, and those limited by a guarantee.
2.1. Company Limited by Shares
Most SMEs in Hong Kong are incorporated as a company limited by shares due to the relatively minimal risk associated with operating a company structured in such a way.
Companies limited by shares can provide extra protection for its shareholders as the company will exist as a separate legal entity from the individual. In the case that the company limited by shares encounters financial problems, the liabilities of the owners are limited to the assets within the company, and therefore this can protect their personal financial assets.
2.2. Company Limited by Guarantee
A company limited by guarantee is not commonly used in Hong Kong, but are often used by non-profit organisations that require a legal entity. These kinds of companies are limited by guarantee, rather than capital – this means that parties involved are considered as guarantee members, not shareholders.
Companies incorporated under this structure require members guarantee to agree to invest a predetermined amount to cover the company’s liabilities in the event of the company winding up.
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3. The differences between a public limited company, and a private limited company
Private limited companies, also commonly known as private companies, are normally incorporated for SMEs and are used for business and trade purposes. These companies limited by shares have a share capital that is divided into a number of shares of varying values whereby the shareholders are entitled to share of the profits of the business.
Private limited companies in Hong Kong face certain restrictions that Public Limited Companies are not exposed to, particularly:
- Restrict its right to transfer its shares
- Limit the number of shareholders to 50, excluding employees of the company; and
- Prohibits any invitation to the public to subscribe for any shares or debentures in the company.
Public Limited Companies differ as they are typically medium to large scale businesses that are locally incorporated and are listed on a public stock exchange. The amount of shareholders are often much larger than that of private limited companies but these companies face strict rules and regulations and are often required to file their annual accounts on a public record.
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4. What a partnership is and the differences between a General Partnership and a Limited Partnership.
Partnerships are businesses that are incorporated, and owned, by two or more individuals. These individuals work together to not only carry on the operations of the business, but also share profits. Hong Kong partnerships can have 2-20 partners and are either structured into either a General Partnership, or a Limited Partnership. Once a partnership exceeds 20 partners, the partnership must be registered as a company.
Unlike a company structure that is limited by guarantee or is limited by shares, individuals involved in a partnership are required to be jointly, or individually liable for all the debts and liabilities incurred by the company.
4.1. General Partnership
General Partnerships require that each partner of the company will be held personally liable for the debts and liabilities incurred by the company. They will be responsible for the running of the business and have unlimited liability. In addition, to the extent that a partner acts in the course of the company’s business, each other partner may be held responsible for the actions of that individual.
4.2. Limited Partnership
In a Limited Partnership, the possible liabilities and business debt that each partner can be exposed to will be limited by the amount of capital they contribute to the company and will not be involved in making business decisions.
Conclusion
As business owners can utilise a multitude of company types in Hong Kong, understanding the unique traits of each company structure and the appropriateness of each one is imperative to a successful business. As a registered Hong Kong company secretary, the FastLane Group has extensive experience advising, and assisting our clients incorporate their Hong Kong companies. Please contact the FastLane Group for assistance! Click here for further information Sole Proprietorship.
