Key Takeaways
The type of legal entity you choose in Hong Kong directly affects your liability, tax obligations, and how your business is perceived by banks, clients, and investors.
A private limited company is the most flexible and protective option for entrepreneurs who plan to scale, raise funds, or limit personal risk.
If you’re planning to start a business in Hong Kong, one of the first, and most important decisions you’ll make is choosing the right legal structure.
It might seem straightforward at first, but with options like sole proprietorships, partnerships, and limited companies (not to mention branch vs subsidiary for overseas businesses), picking the right one can get confusing fast. I know this because I’ve seen many entrepreneurs go through this.
That’s why I’ve created this quick, practical guide to explain the key fundamentals of legal entities in Hong Kong.
Whether you’re a local entrepreneur or a foreign founder expanding into Hong Kong, this article breaks down everything you need to know to choose the best legal entity for your goals.
Inside, you’ll find:
✅ The types of business entities in Hong Kong
✅ Pros and cons of each structure, from taxes to liability
✅ What to consider before you register your business
If you're ready to set up your company with clarity and confidence, let’s dive in.
What is a Legal Entity in Hong Kong?
A legal entity in Hong Kong refers to any organisation or structure that has been formed and recognised under Hong Kong law as having legal standing. This means it can own property, enter into contracts, sue or be sued, and carry on business in its own name, independently from the individuals who manage or own it.
In the context of business, legal entities include companies incorporated under the Companies Ordinance (Cap. 622), such as private or public limited companies, as well as other structures like partnerships, sole proprietorships, and branches of overseas companies.
Why Legal Entity Status Matters
Having legal entity status provides a business with:
- Limited liability protection (in most cases), shielding owners from personal risk.
- Continuity, as the entity can continue to exist despite changes in ownership or management.
- Formal recognition by banks, investors, and authorities.
Please note that not all business forms in Hong Kong are separate legal entities. For example, sole proprietorships and partnerships are not considered separate from their owners in law, and therefore do not benefit from limited liability.
Types of Legal Entities for Businesses in Hong Kong
Next, let’s compare the main differences between entity types in Hong Kong. Your decision here will affect your personal liability, tax obligations, reporting requirements, and even how banks, clients, and partners perceive your business.
Here’s a summary of the types of business entities.
| Entity Type | Key Things to Know | Suitable For |
|---|---|---|
| Sole Proprietorship |
|
Solo operators like freelancers or small-scale traders in low-risk sectors. |
| Partnership |
|
Two or more professionals sharing resources (e.g. law or family firms). |
| Private Company Limited by Shares |
|
Entrepreneurs seeking growth, investment, and limited liability. |
| Company Limited by Guarantee |
|
Charities, NGOs, or non-profits needing formal structure and tax exemption. |
| Branch Office |
|
Overseas companies entering Hong Kong without setting up a new entity. |
Now, let’s take a closer look at each type.
Sole Proprietorship
📌Is This Right for You?
If you're comfortable taking on full personal liability and plan to run the business alone, this is a simple and efficient way to start.
A sole proprietorship is the simplest and most direct way to operate a business in Hong Kong. It is owned and operated by one person. You have full control and keep all the profits, but you also bear all the risks.
Key Features:
- Owned and managed by one person
- No legal separation between the business and the owner
- Must be registered with the Business Registration Office
✅ Pros
- Simple and low-cost to set up
- Full control over decision-making, profits, and business operations
- Minimal compliance requirements
❌Cons
- Risks that are taken by the sole proprietor may result in personal bankruptcy.
- Limited scalability and financing options
- May be challenging to open a business account without a strong financial history or supporting documents.
Partnership
📌Is This Right for You?
Partnerships make sense if you're going into business with someone you trust, and you're both aligned on goals. Just ensure roles, finances, and dispute processes are clearly defined from the start.
A partnership is a business jointly operated by two or more individuals. Similar to a sole proprietorship, this business entity is not a separate legal entity, so the partners are personally responsible for the business. Profits are usually shared equally, unless stated otherwise in a partnership agreement.
K ey Features:
- Formed by two or more individuals/ entities
- Governed by the Partnership Ordinance (Cap. 38) or the Limited Partnerships Ordinance (Cap. 37)
- Not a separate legal entity from the partners
There are 2 types of partnerships in Hong Kong.
- General Partnership (GP)
In a general partnership, all partners manage the business and share full personal liability for its debts. Any partner can act on behalf of the business and make binding decisions. The partnership typically ends if one partner exits unless agreed otherwise. - Limited Partnership (LP)
In this setup, some partners manage the business (general partners), while others only invest money (limited partners). Limited partners aren’t responsible for debts beyond what they invest unless they start managing the business.
✅ Pros
- Shared financial and operational responsibility
- Flexible management structure
❌Cons
- All partners are personally liable (except limited partners in LPs)
- Risk of internal conflict if roles aren’t clearly defined
- Less attractive to outside investors compared to a limited company
Did you know? A Limited Liability Partnership (LLP) also exists in Hong Kong, but it’s reserved for law firms. It offers some protection for partners and is regulated by the Legal Practitioners Ordinance.
Private Company Limited by Shares
📌Is This Right for You?
If you're planning to scale, bring in investors, or protect your personal assets, a private limited company offers the structure and credibility you’ll need. It’s especially suitable if you earn income from overseas, as you may qualify for offshore tax exemption.
A limited company is a separate legal entity from its owners. It can enter into contracts, own property, and be held liable in its own name. This structure is the most popular for businesses in Hong Kong.
Key Features:
- Incorporated under the Companies Ordinance (Cap. 66)
- Liability is limited to investment in shares
- Can have up to 50 shareholders
- Must appoint at least one director and one shareholder.
- Must file annual returns and (unless exempt) audited accounts
- Profits are taxed at the corporate tax rate
✅ Pros
- Limited liability for shareholders
- Greater tax planning flexibility, including deductible expenses, potential offshore tax exemptions and other tax advantages
- Strong credibility with clients, banks, and partners
❌Cons
- Higher setup and maintenance costs
- More compliance requirements and admin tasks.
Helpful: Learn how to set up an offshore company in Hong Kong.
Company Limited by Guarantee
📌Is This Right for You?
Ideal for charities, non-profits, associations, and clubs that don’t distribute profits but need a formal legal structure with limited liability.
A company limited by guarantee is commonly used for organisations with social, educational, or community-driven missions. Instead of shareholders, it has members who agree to contribute a nominal amount (e.g. HKD 10) in case the company is wound up.
Key Features:
- No share capital and no shareholders
- Members act as guarantors
- Must file annual returns and meet audit obligations
- Can apply for tax exemption if registered as a charity
✅ Pros
- Limited liability for members
- Professional structure for non-profit organisations
- Eligible for Section 88 tax-exempt status
❌Cons
- Cannot issue shares or distribute profits
- Still subject to ongoing filing, governance, and audit obligations
Branch Office of a Foreign Company
📌 Is this right for you?
If you're expanding from overseas and want to keep control without forming a local company, setting up a branch office in Hong Kong might be the right choice.
A branch office is not a separate legal entity. It is legally and financially part of the parent company. This means any liabilities or debts incurred in Hong Kong fall directly on the overseas company.
Key Features:
- Must register as a “Registered Non-Hong Kong Company” under the Companies Ordinance
- Can conduct commercial activities, issue invoices, and sign contracts
- Requires a local representative and business registration
✅ Pros
- Direct control from headquarters
- No need to inject separate capital or set up a subsidiary
- Operates under the brand and structure of the parent company
❌Cons
- Parent company bears full legal liability
- May have limited credibility compared to a locally incorporated company
- Not eligible for Hong Kong’s offshore tax exemption
Final Note
Now that you know how each legal entity works, the next step is choosing the one that fits your business goals. And when you're ready, Statrys can help you register and get started.
FAQs
What does incorporated entities mean?
Incorporated entities refer to the business that a company has incorporated into, which provides the company with its own 'legal identity'.
