Type of Business Structures in Hong Kong
Get to know the types of business structures in Hong Kong with 3E Accounting’s essential guide.
Almost everybody these days has a business idea, but not many have a clue as to what structure their business should take. Knowing the type of business structures in Hong Kong is essential if you want to start on the right note. Consider the size of the company, profit or non-profit, and even if you plan to list on the stock exchange. There is also the cost of setting up as well as how complicated the procedure can be.
All business registration and company incorporation are done with the Hong Kong Companies Registry (CR). Their online e-Registry platform facilitates ease of electronic submissions and offers discounts for such applications.
Hong Kong has the following types of business structures that can be incorporated:
- Business registration for Sole Proprietorship & Partnership
- Company incorporation for Limited Liability Company – governed by the Companies Ordinance (Cap. 622) and can be either:
- Private Limited
- Public Limited
- Limited by Guarantee
- Branch Office, Subsidiary Company or Representative Office
The most basic, no-frills form of entity is the sole proprietorship. It is best suited for small concerns and entrepreneurs who want full control over their business. Both sole proprietorships and partnerships do not acquire a separate legal identity upon incorporation. Owners and partners have unlimited liability which places their personal assets and finances at risk. Both types of businesses do not exist in perpetuity.
The Partnership Ordinance governs partnerships, and at least two partners are needed to start a partnership. Partnerships can be either:
- A General Partnership: every partner is personally liable for business debts and responsible for the everyday management of business operations.
- A Limited Partnership: a mixture of a general and limited partnership. Limited partners’ liability is restricted to their unpaid share capital. They are passive investors with no say in the management of the business and not accountable for other partners actions.
Upon incorporation, limited liability companies acquire a separate legal identity which gives it legal status and existence. It allows the company to own property, engage in legal action, enter into contracts, etc. Raising capital and other types of funding are also easier. The company also exists in perpetuity independent of its shareholders. Most importantly, it limits the liability of owners and shareholders to the extent of the capital investment.
Companies that are limited by guarantees have no working capital or share issuance. Instead of shareholders, they have members who pledge a prearranged amount to cover the company’s possible liabilities. This type of company is suitable for charitable or non-profit organizations.
Public limited companies have more than 50 shareholders and can choose to list on the stock exchange to raise more capital. Such companies are a bit costlier to establish and have more stringent compliance requirements.
The Most Popular Type of Limited Liability Company in Hong Kong
By far, the most popular type of limited liability company in Hong Kong is the private limited company, which is ideal for small-medium enterprises. They are straightforward to set up, do not cost much and have fewer compliance requirements. Successful private limited companies also issue share dividends to their shareholders.
Foreign business can establish their presence in Hong Kong by setting up a branch or representative office or a subsidiary. Requirements and compliance are strict, and the scope of operations are usually limited to sourcing for leads, etc.
If you are still unsure what to choose or need help getting started, Contact 3E Accounting today. We are industry experts at company incorporation and offer an umbrella of related services. Come to us with your ideas, and we will guide you from start-up to software development for your business.