Entrepreneurs should choose the most suitable for of legal entity, the one that gives them the most convenient taxation regime and that is most suitable for the size of their planned business. For this purpose, it is essential to know the requirements of each type of company.
In Hong-Kong, various forms of business may be chosen but the basic ones are the sole proprietorships, companies, and partnerships.
Several types of business entities are available for incorporation in Hong Kong. They have different characteristics and may be suited for small or large companies. Important aspects to consider before choosing the right type of company include the following:
-the nature and size of the business;
-future expansion plans;
-current and future business needs.
Our company registration representatives invite you to watch a short video about the types of companies in Hong Kong:
Sole Proprietorships in Hong Kong
The sole proprietorship is a basic type of business, very easy to register. It is operated by a single owner, fully liable with his own assets for the losses and profits of the business. The business ceases to exist at the death of the owner. It may be transferred only by selling the business’ assets. The income is taxable at 15%, unlike the corporate income tax of 16.5%.
Company types in Hong Kong
The companies may be private limited by shares or public limited by shares.
The private limited liability companies are the most popular form of business in Hong-Kong. Unlike the sole proprietorship, it is a separate business entity from the founder. They are incorporated by at least one shareholder, one director, and a secretary. The secretary must be a Hong-Kong resident. The maximum number of shareholders is fifty.
There are no requirements regarding the minimum share capital. The company’s share capital is divided into equal shares, distributed among the company’s members. Their liability depends on the number of owned shares and unlike the sole proprietorship or the partnerships, the assets of the members are protected in case the company is liquidated.
The shares are not freely transferable and cannot be delivered to the public. Usually, the Memorandum of Association is stipulating the way these shares may be transferred.
A public limited company may be formed by more than fifty members and have the share capital divided into shares, received by the shareholders and registered at the Stock Market in order to make it public. The increase of capital is possible after incorporation. It’s a form of business preferred especially by large corporations. The liability of the company’s shareholders depends on the number of owned shares and this is considered an advantage in case the company is liquidated.
Acompany limited by guarantees is not based on share capital only on guarantees received from its members. It’s a form of business chosen by a charitable organization in order to raise funds for humanitarian reasons. Its members also benefit from limited liability.
Partnerships in Hong Kong
The partnerships may be general or limited.
A general partnership is based on an agreement between two or more partners, personally liable with their personal assets for the company’s losses and which are allowed to split the profits among them. The death of a general partner may dissolve the partnership. No share capital is requested at registration. The partners are also liable for the actions of the other partners.
A limited partnership is formed by a limited partner, liable to the extent of his contribution to the company’s capital and a general partner fully liable for the company’s losses but who also have the decisional powers. Only the death of the general partner may cause the partnership dissolution. Partnership owners in Hong Kong must observe the provisions of the Partnership Ordinance.
The foreign companies may open businesses in Hong Kong that will act as an extension of the company abroad. These are the branch and the representative office. Out of these two, the branch is the only one that can undertake commercial activities and derive profit in Hong Kong while the representative office is only used for marketing purposes. A subsidiary is an option suited for foreign companies that want to be separate from their counterpart in the city.
Each of the business types described is required to comply with different levels of financial reporting. The requirements are less complex for partnerships and increasingly more demanding for companies, especially the public company.
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