A sole proprietorship in Hong Kong can be converted into a limited liability company (LLC) to expand the business and benefit from the limited liability the company offers to the founders. The conversion procedure is simple and it will require the incorporation of a new company in Hong Kong. The assets and bank accounts may be transferred and one of our lawyers in Hong Kong can help assist you throughout this procedure.
Our attorneys invite you to watch this video about the company conversion in Hong Kong:
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Reasons to convert a sole proprietorship into a LLC
The sole proprietorship in Hong Kong is easy to incorporate and does not require a substantial initial investment. However, it has a series of disadvantages that, in time, can keep the business from progressing or even threaten it. The main disadvantage of the sole proprietorship is that it is not a separate legal entity from its founder: this way, the investor is fully liable for the debts and obligations of the business. This unlimited liability, as well as a limited source of finance (only the investor’s finances and profits), can be significant disadvantages for running a sole proprietorship.
The benefits of converting a sole proprietorship into a limited liability company are the following:
– distinction between the company and its founder: the company has legal capacity and can purchase assets or sign contracts,
– limited liability: the investor is no longer fully liable, he is only liable to the extent of his investments in the company,
– continuity: the company lived on even after the death if its founders, shareholders or directors,
– easiness to raise capital: the company can access capital by admitting more shareholders or through bank lending,
– better public perception: a company is a business structure that provides more credibility and stability for the public.
The sole proprietorship – LLC conversion procedure
In order to convert a sole proprietorship into a company, the investor will first need to create a new company. The first step is to choose a suitable and available business name and then apply for registration with the Companies Registry. A number of documents are required at this stage.
Any existing assets can be transferred from the sole proprietorship to the newly incorporated company. This must be done before the termination date of the sole proprietorship. Any existing bank accounts used for the simpler business entity can be transferred for future usage with the company. investors should also consider that they will have to obtain new licenses and business permits and re-sign existing contracts.
Remaining in Hong Kong for at least seven years under a valid residence permit for business purposes allows the holder to apply for the right of abode. This is in fact the right to permanent residency in Hong Kong and, during this time, the businessowner is allowed to change the business form, should this be suitable for this business venture. Our team can give you more details.
While some businesses prefer to start small, a conversion may become mandatory for business expansion or for the avoidance of some business risks. If you decide to change your business structure, the attorneys at our law firm in Hong Kong can provide assistance and legal representation throughout all of the steps required for converting one business structure into the other.