A partnership is a business organization operated and managed by two or more individuals. The owners are equally liable for the business’ debts.
Partnerships in Hong Kong can be run by a high number of partners. In order to establish a partnership in Hong Kong, asking for the guidance of a lawyer in Hong Kong might be the appropriate thing to do.
Table of Contents
Advantages of Hong Kong partnerships
There are various reasons for which a foreign entrepreneur should choose to open a partnership in Hong Kong and the main ones are the following:
- there are no registration demands with the Companies Registry;
- there is no minimum capital required;
- it is one of the easiest forms of company formation in Hong Kong;
- comparing to the other types of legal entities, a partnership is rather easier to maintain (from a financial point of view).
Partnerships are governed by the Partnership Ordinance in Hong Kong and fall into two categories: the general partnership and the limited partnership. Our law firm in Hong Kong can make sure that your business will operate as soon as possible and that you will establish the type of partnership thatcan suit yourbusiness interests.
Our lawyers invite you to watch a video about partnerships in Hong Kong:
Hong Kong General Partnership
General partnerships in Hong Kong imply making every partner of the company liable for the debts of the running business. The advantages of a general partnership are as follows:
- the combined expertise, which can be reached by means of gathering together the partners’ skills, resources, and knowledge;
- the fact that it can attract employees (by giving the incentive that they can become partners of the firm);
- easiness of raising capital, as the financing sources include extended bank loans (on the basis of combined financial power of all partners) and loans from the actual partners.
- the partnership is subject to lighter management and control requirements; this means that there are no conditions for auditing the business annually or publish the annual accounts.
Each partner can also be held liable for the other partners in the structure. Moreover, the partners share the profits between them. Therefore, it is advisable for the partners to share the same business goals and work together towards meeting them.
Our Hong Kong attorneys will provide you with complete input on the advantages of establishing a Hong Kong general partnership.
Limited Partnership in Hong Kong
Limited partnerships are comprised both of general partners as well as from limited ones. General partners have unlimited liability for the firm’s debts, while limited partners cannot take part in the management of the partnership and the advantage is that they can leave and/or be replaced without the dissolution of the entire partnership.
Limited partnerships rejoice from having fewer compliance demands in comparison to other business forms.
The limited partner of a limited partnership can be a corporation.
Limited partners are not allowed to draw out or receive back their contributions to the partnership, either in part or in full, during the continued existence of the partnership. If this takes place, then the partner who has withdrawn or received back that amount will be liable for the debts and obligations of the partnership up to the respective amount.
It should also be noted that in a limited liability partnership the limited partners are passive investors, meaning that they are not involved in the management of the partnership, not can they be part of decision such as introducing new partners. However, this is a feature that also allows them to maintain their limited liability in this structure.
The limited partner can, however, consult on certain matters concerning the partnership. For example, he may inspect the relevant books (either in person or through an appointed agent) and may advise with the general partners after having consulted the available information.
Limited partners who wish to or do take part in the management of the limited partnership are to be considered general partners and are thus liable for all the debts and obligations that may derive during the time in which the limited partner has taken up such role.
In the event of dissolution, this is handled by the general partners, unless otherwise instructed by court.
Limited and general partnership comparison
The table below summarizes the main differences between the two types of partnerships available in Hong Kong:
|Limited Liability Partnership||General Partnership|
|Liability||The limited partners are not personally liable, only the general ones||All partners are jointly and severally liable|
|Flexibility||The partners can be easily changes||The partners can be changed without altering the structure|
|Management||Only the general partners are involved||The partners are jointly involved|
The partnership, through its structure, is a business form in which various disputes can arise between the partners. These can hinder the management and operations of the business, and, in these cases, it is advisable to reach out to a team of litigators in Hong Kong who can help solve the disputes amicably if possible.
If you need more information about these two business forms or are in need of specialized assistance for their formation, please reach out to our lawyers.
As one of the partners of a partnership in Hong Kong, non-Chinese foreign nationals can apply for residency in Hong Kong based first on doing business, followed by the application for the right of abode. The latter can be lodged after having lawfully lived in HKSAR for at least seven years, during which time the applicant will have remained a partner or would renewed his or her residence on other grounds.
Partnership taxation in Hong Kong
The partnership is taxed as a single entity. However, individuals can use their shares of losses as offset against the assessable profits of another business in which they are involved.
The assessable income of the partnership is largely determined in the same way as it is for corporations, however, special rules apply in terms of remuneration payments made to a partner.
When a sole trader is converted into a partnership, the taxation will be based on a profits tax return issued by the Inland Revenue Department for the new partnership.
A sole trader can be converted into a partnership when one or more partners are admitted.
Our team answers a set of common questions about Hong Kong limited partnerships which are subject to registration. Please keep in mind that the fees mentioned below can be subject to change.
Do I need to register the partnership?
Limited partnerships are registered with the Companies Registry. The following fees apply:
- a registration fee of HK$ 340;
- a fee of HK$ 8 for each limited partner;
- the partner’s fee applies for evert HK$1,000 or part of HK$1,000 of the amount contributed by each of the limited partners.
How long does the registration take?
In most cases, the Certificate of Registration for a Limited Partnership is issued within 5 working days.
It is advisable to provide all of the needed documents in order to ensure an easy application processing.
Can I change the partnership’s particulars?
Yes. For a limited partnership the particulars can be changed with the Companies Registry. A fee for registering a change applies, with a value of HK$ 26.
Every newly introduced partner will also have to pay the aforementioned HK$ 8 fee for every HK$ 1,000.
Feel free to contact our Hong Kong law firm who can counsel you through all the steps that need to be completed in order to establish a partnership in Hong Kong.