A Brief Overview of LLC (Limited Liability Company) in Hong Kong

A Brief Overview of LLC (Limited Liability Company) in Hong Kong

LLC, which is a legal entity you can form, is one of the business structures you can use in Hong Kong. Limited Liability Company formation protects shareholders since it is a separate legal entity from its owners. This structure is like that in Hong Kong, and the installation is not very complicated.

In Hong Kong, LLCs need to be registered with the Companies Registry (the Companies Registry can perform the process online). This manual will explain the differences between an LLC and other business entities, and hopefully, you will find it useful in your decision making process.

What Is a Limited Liability Company (LLC)

LLC is a business structure that allows its owner to be protected from liability. The establishment of a limited liability company (LLC) through the laws of Hong Kong is an emergence of a new legal identity that’s distinct from its members.

Nevertheless, this safeguard may be broken by the directors’ malicious intentions. Loan guarantor requirement may also be imposed on owners, for example, if they are borrowing some business loan, which makes them liable on personal level.

Things You Need to Know about LLC

The process of forming an LLC is not complicated. Similarly, when you register a company with the Hong Kong Companies Registry, it is like creating any other type of business entity.

In Hong Kong, the liability each shareholder has is limited by the contribution they have made to the registered capital: they are only at the same risk as the amount of money they had invested. This is different from a Sole Proprietorship or Partnership.

Different from Limited Company where a profit is distributed to shareholders who later declare it on their individual tax returns. In this way a company would not be taxed twice on income, as the company pays taxes on the profits before distributing them and individual shareholders also pay income tax on their dividends.

Benefits and Disadvantages of LLCs

Benefits and Disadvantages of LLCs

When you start a business in Hong Kong, you should know the types of proprietorships or business structures so you make an informed decision of business entities that may be suitable given your business needs. LLCs share some characteristics of Limited Companies and Partnerships.

A Limited Liability Company (LLC) setup, might save the owners from personal liability, and create a good corporate image, which makes ownership transfer easy and achieves tax benefits.

The difficulties related to Hong Kong businesses are the restrictions on going public according to the type of business entity (the easiest way to list in the stock market in the future is the Limited Company). You have to comply annually and the corporate winding-up can be quite complex.

Establishing a Limited Liability Company (LLC) in Hong Kong

Establishing a Limited Liability Company (LLC) in Hong Kong

The legal structure you decide on will determine ownership structure, taxation and your liability. You should get a thorough understanding of how this can affect you.

After you have chosen to create an LLP, you need to give a thought to your company’s name, shareholder capital (who is the owner of the business), plan the way it is run through your articles of association and submit the documents.

Next, we will explain each step thoroughly: 

1. Choose a Business Name

Naming your startup is one of the most exciting and difficult yet shortest moments you will share while setting up your business operations. Don’t forget a few things some of which may be useful for you. 

You may not select a name that has already been registered with the Registrar of Companies in Hong Kong. On the other side, please don’t choose a name that has the risk of being an infringement of the intellectual property rights held by another company or organization, which might result in either criminal or civil sanctions.

The online Cyber Search Centre website or the Company Search Mobile Service can both be used for an inquiry based on a first and last name. In this case, an exact search was carried out as well as the name was written in traditional Chinese characters for its Chinese equivalent. The Trademark Register is where the next step is done.

2. Decide the Shareholders and the Share Contribution of the Company

Shareholders are the owners of the company. Whether they are the majority or minority owners depends on the amount of shares they own. In Hong Kong, the number of shareholders can be from one to 50. These groups are mostly made up of the company’s co-founders and investors.

The value of each share is usually decided by the number of share and the investment volume you have. Another example would be if you choose to start with HK$10,000 and then you purchase 100 shares which are each worth HK$100. In the event that an individual who is a partner owns 50 shares, then he or she holds half of the company.

3. Get the Articles of Association

The Articles of Association in a Hong Kong LLC provide a guide to how these companies operate. Apart from this, you should also highlight a few key data points such as the company name, its purpose and its shareholding.

Beyond these, you can include features about how you will approach certain issues, for instance, the situation in which directors disagree. It goes without saying that is much better to agree on these features in advance than to establish the policy if the problem suddenly arises — you want to ensure that the partnership begins on a firm basis. If you are not sure what to mention in your Articles, seek professional advice.

You can choose to write your own and use the Model Articles given on the Hong Kong’s Companies Registry official website. This is a format that has filled in all necessary data. You have the liberty to entirely adopt all the provisions or make some modifications to them.

4. Register Your Business

Business Registration Certificate

Company formation is conducted through Hong Kong’s Companies Registry. After you select your name and list the necessary information, you can register online through the e-Registry or by submitting your application by mail.

This process is followed by the issuance of a Certificate of Incorporation together with a Business Registration Certificate after your company has been incorporated. Fastlane simplifies registering a company in Hong Kong by taking care of the paperwork and ensuring that you’re complying with the regulations in HK.

Once that is done, you should pursue any licenses that you need, which depends on what kind of business you’re running.

Core Attributes of an LLC

It is always advisable to register your company as a prerequisite before the business of a company begins in Hong Kong. The selection of legal structure will influence your ownership structure, taxation, and your liability, and therefore it’s critical that you understand this before deciding on an LLC for your formation.

In Hong Kong, these are Sole Proprietorship, Partnerships and Limited Companies, which are the most common ones. It is necessary to strike a balance between simplicity of formation and operation and functionality. As Sole Proprietorship is very simple to set up, but it is one-party shareholders are not allowed. Limited Companies is more complex, however, after you are selling shares it is easier.

This article is divided into the next five sections and each one will go deeper into the different aspects so that you can have a clear idea of your structure.

Flexibility Provided by LLCs

LLCs can easily give or hand over shares to new members in a simple drag-and-drop manner. This means that you will be able to receive funding through investment partners.

Succession of assets can very well be arranged in LLC making easy appointment of new shareholders. This is the reason why Partnership differs from the Sole Proprietorship which stops trading when sole proprietor passes away or when he stops trading.

LLC is an entirely new legal entity that is formed upon its incorporation. This evokes a scenario whereby the corporation can obtain financing such as from the banks and be in the position of repaying the debt as well as taking accountability for the damages.

The shareholders are protected by it. For example, if a bank is pursuing an LLC with unpaid debt, it can only seize the LLC assets, which may result in the liquidation of the LLC. Therefore, the personal assets of the owners are safe if, in such a scenario, the company goes into liquidation.

It should be mentioned that the entrepreneur owner can be obliged to make personal guarantees in that case. In addition, the directors are not otherwise liable for breaches of Directors’ Duties.

Liability of a Business Owner

The LLCs in Hong Kong have some benefit of having the ownership of the shareholders being protected. Legal liability, borrowing and other actions can be shouldered by the LLC which has now been given a separate legal entity. Thus, it is a separate legal entity, which is different from the shareholders, and hence, it reduces their liability. In contrast, this is different from Sole Proprietorships since the owner is held liable for everything.

The Availability of Funds and the Convenience of Bringing Investors on Board

We mentioned before that to have additional shareholders and shares is possible by the structure. This implies that the process of widening is simple by selling shares to raise capital or bringing new people of board.

In Hong Kong, the image of LLCs is also positive; talking with possible customers and banks and establishing partnerships are thus simpler.

The advantages differ from a Sole Proprietorship where you are limited to the number of shareholders you can add. Also, the notion is that it’s a smaller, less sophisticated organisation.

A Perpetual Entity with Flexible Shareholder

LLCs have the ability of being able to exist perpetually. In the case one of the directors is replaced or passes away, it is easy to add new shareholders. 

Here, we see a complete opposite situation to a sole proprietorship, which ends with the owner decision to cease business operation or his death.

This is particularly useful if the buyer plans on reselling or perhaps leaving the property (inheritance) to the family members later on.

Conclusion

LLCs give entrepreneurs the structure of running a business and the desired benefits this can bring to it. One of the key benefits of a limited liability company is an ease of adding new shareholders when necessary, which allows to hire new directors and raise capital. In addition, LLCs are entitled to be able to borrow funds without providing personal asset guarantees. Also, for public LLCs, the presence of prominent individuals leads to the credibility and the image of the company in the public eye.

How FastLane Group can help you with LLC formation in Hong Kong?

FastLane Group makes Hong Kong Limited Liability Company formation simple, guiding the client through from beginning to end. We take care of all procedural formalities, such as name reservation, document preparation, and submission to respective authorities. In addition, our all-encompassing services cover bank account opening and ongoing compliance, making sure that your company meets all regulatory standards with ease. Contact us now.

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