The company structure in Hong Kong can be divided into many types, which are as follows.
Some of the business forms include the private limited companies, the public limited companies, the sole traders and the partnership form of business.
That being said, the specific type of business that is favored and used most frequently in Hong Kong is the private limited company.
This is why entrepreneurs decide to incorporate their business as a private limited company since there are so many benefits associated with it.
After covering the fundamentals of the company formation in Hong Kong, this article outlines ten advantages and disadvantages of having a private limited liability.
Content Outline
What Is A Hong Kong Private Limited Company?
A private limited company is also called a “private company limited by shares” or simply “limited company (Ltd.)” is the company, which is a separate legal entity apart from the shareholders.
Compared to sole traders, partnerships, and partnerships, a private limited company has its own responsibilities and regulations.
It is directly registered with the Hong Kong Companies Registry and operates under the Hong Kong Companies Ordinance.
One of them is that it is an entity that conducts business on its own account, which implies that it has its own sources of income, property, and debts.
Unlike a public limited company, the stock of this kind of company is not sold in the stock market; they are sold to the shareholders only.
Shareholders’ liability is limited to the share capital meaning that in the event of loss or even if the company is wound up, the shareholders are only in for a maximum amount equal to the amount they invested in the shares.
The Structure Of A Private Limited Company
Basic legislative rules with respect to any private limited company within the territory of Hong Kong are:
Shareholders: It is mandatory that the company must have a minimum of 1 and a maximum of 50 shareholders, which may be individuals or companies from within the country or from other countries.Read Procedure For Share Allotment In Hong Kong.
Minimum of one director: Currently, there is no legal requirement as to how many directors a company cannot appoint. These can be individuals or companies residing in the same country as the project site or from any other part of the world. A Hong Kong company can be formed by at least one subscriber with no requirement for a local director as is the case in Singapore.
Company Secretary: If the Company Secretary is an individual then he or she should be residing in the Hong Kong and has a valid local address. If it is a professional company which operates as the Company Secretary, then it should be registered with TCSP License which is Trust or Company Service Provider License provided by the Hong Kong Companies Registry.
Business Registration Certificate: BRN from the Business Registration Office proves the legal status of the business and distinguishes between personal and business assets. The registration process can either be done by the Business itself or with the help of Business Registration Service. If the Company Secretary is a professional company, it must have a valid license which is issued by the HK Companies Registry known as the TCSP License.
The Advantages Of Private Limited Companies
1. Limited Liability
The liability of shareholders of a private limited company extends only up to the amount of shares they hold in the company and they are not legally bound to contribute their personal money for the payment of any overdue amount of the company. This characteristic translates to the fact that all personal assets are shielded in case the business faces some financial woes, and shareholders cannot be liable personally.
On the other hand, in sole trader or partnership businesses, the owners may be held responsible for any risks or losses in the business using their personal property.
2. Shareholders Are Protected
As a result of the limited liability, the shareholders are responsible for the company’s financial obligations up to the amount they invested in the company. This protection makes shareholders to avoid being held responsible for the debts of the company more than their capital or the price of stocks; this encourage more investment. Since there is insignificant risk as all they stand to lose is the amount of capital they have invested in the company, shareholders are more likely to bring in their money.
3. Easier Access to Funding
A private limited company is the most conventional method that is adopted in the process of fundraising. After incorporation, it can issue shares to other investors as a way of raising capital. The shares can also be classified into various types to depict the relative entitlements of different shareholders. Also, the funding from the financial institutions is easier to access by the private limited companies rather than other forms of businesses.
4. Simplified Ownership Transfer and Continuous Existence
This is unlike sole trader or partners where in case of death the business is closed down, a private limited company carries on despite the death of any of the members. To change or even transfer ownership of a private limited company is easy and fast because it can be done through transfer of shares or disposal of shares.
5. Attractive Tax Regime
It is important to note that there is something called “territorial tax” system in Hong Kong and being a private limited company, business can take advantage of this system. In other words, a company operating in Hong Kong does so without any obligation to pay tax on any profit that it earns from outside Hong Kong. This is done by the inland revenue department (IRD).
6. Quick and Easy Incorporation Process
Setting up a private limited company is straightforward and can be completed in just a few hours.
FastLane Group can help you with the whole incorporation process.
7. Business Name Protection
One significant aspect of a private limited company is that once registered, the company’s name is protected by law. This makes it a rule that no other company, which will register after yours, will be allowed to use a similar name. This protection ensure that your company’s brand is not similar to any other business operating within that region.
8. Credibility
In contrast to a sole-proprietorship, running a business with a registered office address which is a private limited company composition provides confidence to your customers. This strengthens reputability and visibility so that customers can look you up in a faster and easier way.
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The Disadvantages Of Private Limited Companies
1. Annual Audit Requirement
According to the Hong Kong law, it is mandatory for every company to provide the audited account for the financial year. However, small private companies have the opportunity to state that they will present simplified accounts which reduces the burden. Although there is a cost involved in the audits, they are helpful in providing information and are helpful in maintaining the correctness of the financial information provided and in ensuring that it meets regulatory requirements.
2. Public Disclosure of Information
The law requires shareholders and directors of private limited companies to register their identity to the Companies Registry of Hong Kong. Therefore, where as for any member of the public to get a detailed information about the direct shareholders in a private limited company, it has been made very easy. Nonetheless, information about indirect shareholders is not disclosed or forwarded to the Companies Registry and they retain relative anonymity.
How FastLane Group Can Help?
Are you searching for some advice to establish a new company in Hong Kong?
Reach out to FastLane and our team of experts will help you with the seamless incorporation process so you can focus on your business success. Call us now and start your success journey today!