Choosing the right path for your business idea in Hong Kong
Learning all the different types of companies in Hong Kong can make or break, your business structure and operations. Some business entities are better for certain types of business activities or industries, while others provide a better business organization according to your business goals.
Hong Kong is one of the few jurisdictions in Asia that offers a more secure, and business-friendly process for incorporating business entities. Since Hong Kong is a common law-backed jurisdiction and has an attractive profits tax regime, it is a popular choice for foreign companies, no matter if they are large or small businesses.
Furthermore, since the regulatory environment in Hong Kong is based on common law, the process for setting up a business entity has some similarities to that of incorporating in the UK, the US, Canada, or in Australia.
When planning to do business in Hong Kong, it is important to decide what type of legal entity would fit your business structure and take the proper steps to register it.
Here, we will explain a few key points to consider for choosing the correct Hong Kong types of companies.
Business entities in Hong Kong and how to move forward with the registration phase
Each company type has its unique features to achieve specific business goals. The main options of entity types and business structures for incorporation in Hong Kong, as well as their registration process, will be discussed in the following section:
Hong Kong Sole Proprietorship
A sole proprietorship is one of the most basic and simple ways of doing business in Hong Kong. The business owner will be personally responsible for the business entity.
Registration phase
Individuals intending to run a small-scale business in Hong Kong can register as a sole proprietor (what is known as a ‘sole trader’ in some countries) rather than incorporating an entity.
While it is a straightforward process, using this entity carries its own risk, such as having unlimited liability for the debts of the business.
Here we explain the steps you need to take to register a sole proprietorship in Hong Kong. See How to Register a Sole Proprietorship in Hong Kong.
Hong Kong Partnerships
General Partnership: all the partners have unlimited personal liability for the partnership’s debts with their personal assets.
Limited Liability Partnerships: A limited partnership is formed between a general partner with unlimited liability and one or more limited partners with limited liability.
Registration phase
Another option to explore is Partnerships, in which two people, or more, join together to generate profits. The parties involved in this relationship will be known as partners.
The key difference is the personal liability distribution stated in the partnership agreement between the other partners.
With this distinction, the set-up process changes, and further steps are needed for the limited partnerships. Find out more about Partnerships in Hong Kong.
Hong Kong Limited Companies
Private Limited Company: A private company limited is one of the most popular choices for doing business in Hong Kong since each member is only held personally liable for the amount of share capital they hold.
Public Limited Company: A public company can invite the public to participate in the acquisition of their shares in the way of bonds or stocks. Public companies can be found listed on the Hong Kong stock exchange.
Company Limited by Guarantee: The companies limited by guarantee do not have a share capital, as they are used for nonprofit organizations.
Registration phase
The most popular choice to start a business in Hong Kong is the private limited company.
Read about how to set up a Hong Kong Private Limited Company, the most preferred vehicle of investment for entrepreneurs, where we set out all the steps that need to be taken for the set-up, including naming directors and shareholders, contributing share capital, appointing the company secretary, and filing all the necessary documentation with the authorities.
Representations of foreign companies
Branch Office: as a direct link of the foreign company, the branch office is not a separate legal entity, unlike the limited liability company.
Representative Office: it allows a foreign company to conduct market research to evaluate the potential to make business.
Registration phase
In addition to incorporating a Hong Kong company, international companies can operate directly in Hong Kong. They can do this by registering a ‘branch’ of their foreign company with the Companies Registry in Hong Kong.
While the setting up process is straightforward, the closing down is a bit more complicated since the foreign company is exposed to debts of their Hong Kong operations. See how to open a Branch Office in Hong Kong
Generally speaking, a Hong Kong Representative Office allows the foreign parent company to test and evaluate the market for its intended business plan.
Due to having a scope of action that is limited to non-profit activities, a Hong Kong Representative Office presents itself as a safe choice with a simple set-up process.
How to choose the right option between regular companies, a partnership, or a sole proprietorship in Hong Kong?
Many questions or doubts can arise when choosing and planning among the different options of Hong Kong companies that can be set up. Here we look at a list of suggestions and considerations to help you to make the right choice for your business:
- The complexity of the incorporation process or requirements.
- Applicable tax benefits and tiers.
- Business assets or personal assets level of protection (liability).
- Public perception and reputation.
- Maintenance requirements and operational costs.
- Compliance requirements.
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'.
What are some common types of business entities in Hong Kong?
What are some key factors to consider when choosing a business entity?
