Investors have access to several types of companies in Hong Kong, each presenting unique characteristics. Our team of lawyers in Hong Kong can give you detailed information about all the available business forms and how to choose between them.
The first step when choosing to start a business in the Special Administrative Region is selecting a business form that will serve the existing particular needs. In this article, we list the main types of business entities, both corporations and partnerships or other forms, that can be used by local and foreign investors alike.
Hong Kong is an Asian business hub, conveniently located close to Mainland China. It is one of the preferred locations for foreign investors who wish to open a company that will serve the ASEAN region and it offers clear business advantages, among which we can include a low tax regime, easy company formation, business flexibility, and a welcoming, international business climate.
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Legal entity types in Hong Kong
The four most common types of business forms in Hong Kong are:
- the limited liability company: the most commonly used business form, given its particular advantages, such as the fact that it has legal personality;
- the sole proprietorship: the simplest business form, does not separate the founder and the business, thus making the investor fully liable;
- the partnership: a means through which two or more investors can associate to form a business while sharing profits;
- the branch or representative office: two of the ways in which a foreign company can start its business operations in Hong Kong; they allow for limited activities (in the case of the representative office) or the same activities as the parent company (for the branch).
The limited liability company can be a private limited company, a public limited company, or a public company limited by guarantee. Our lawyers in Hong Kong can help you incorporate any type of company and give you detailed information as to how each business type can be good for your business plans.
If you wish to relocate to HKSAR to open a company, our immigration lawyers in Hong Kong can answer your questions about visas and residence permits.
Choosing the right type of company
Investors who want to open a company in Hong Kong must first choose the right type of company according to their business needs. The choice will depend on a series of factors and investors should be well informed when making this decision. Each type of legal entity in Hong Kong has its own particularities and can be more advantageous for one business type or another.
Our lawyers in Hong Kong can help you with specialized counseling so that you can choose the right business form. Typically, the following factors are taken into consideration when choosing the company type in Hong Kong:
- the nature of the business;
- the size of the business;
- the available capital;
- the business needs.
Investors can take these needs into account when they draw up the business plan. Our team of lawyers in Hong Kong can assist you during the incorporation process, as needed.
Are you interested in acquiring residency in Hong Kong after opening one of these types of companies? Our team of immigration specialists can also answer questions about the types of residence permits that allow you to remain in the HKSAR and their duration. The final, permanent residency, called the right of abode, can be applied for after seven years of lawful stay.
Limited liability companies in Hong Kong
A limited liability company in Hong Kong is a separate legal entity that has a legal identity separate from its members. According to its type, a limited liability company can be suited for small or medium-sized businesses or for large corporations. Companies in Hong Kong need to be registered with the Companies Registry.
The private limited company in Hong Kong is the most commonly incorporated business form because of its advantages. It is a popular choice because the liability of its members is limited only to the amount of investment in the company and the member’s personal assets are not endangered if the company goes into bankruptcy. This type of company is suited for small and medium-sized companies.
Our team lists some of the most important characteristics of the private LLC in Hong Kong below:
- Separate legal entity: as previously mentioned, the founders of the company are not personally liable for the debts and obligations of the business; they are only liable to the extent of the capital they invest in the business (and the laws in Hong Kong do not require a large minimum share capital for the private limited liability company);
- Good image: a corporation is better perceived by clients and other business partners, compared to a sole trader, for example; the LLC does offer a positive, credible image;
- Succession: the company does not cease its activities in the event of a change of the original founders (either through a withdrawal from the company or upon their death);
- Taxation: a limited liability company in Hong Kong enjoys a low corporate tax regime, as detailed below by our tax lawyers.
In addition to the advantages listed above, private limited companies can easily raise capital, should they be required to do so. This can be accomplished by introducing new shareholders (for the private LLC) or by issuing more shares to the existing ones.
The public limited company is suited for larger businesses, as the number of shareholders can be larger than 50. Public limited companies also offer their shares to the public. These companies are usually listed on the Hong Kong Stock Exchange and thus they have to observe different regulations for public disclosure of information.
The public company limited by guarantee does not require a minimum share capital and is thus preferred by some foreign investors. This is a type of company that has the highest degree of liability for its shareholders and it might be suited for charity businesses, clubs, or societies.
If you need help applying for an investment visa in Hong Kong to open a private or public company our team of lawyers can help you.
Trademark registration in Hong Kong is advisable for companies that wish to distinguish themselves on the market. The needed registrations with the Hong Kong Intellectual Property Department can take place once the company is fully registered with the Companies Registry. Our team of IP Law attorneys can help you during the trademark application process
Company structure and requirements in Hong Kong
As the private limited company is the most commonly used form for a limited corporation, it is also the one preferred by foreign investors.
While the business climate is welcoming towards foreign investors, and straightforward, some issues that are well to be remembered by foreign entrepreneurs are listed below by our lawyers in Hong Kong:
- There are no nationality restrictions for shareholders and there is no requirement for them to obtain residency in Hong Kong;
- A private limited company has at least one director (natural person), and requires a company secretary;
- The company’s secretary who is a natural person should ordinarily reside in Hong Kong;
- Non-residents can act as directors;
- When the private company has a single shareholder, he can also act as the company’s director;
- The Hong Kong LLC must have a registered office in Hong Kong;
- Hong Kong companies maintain updated information about their beneficial owners. This is disclosed and included in the company’s Significant Controllers Register.
The company law experts at our law firm in Hong Kong can give you more details about the provisions for disclosing beneficial ownership in the HKSAR and how to fulfill the applicable transparency obligations.
While there are no mandatory conditions for shareholders and directors to ordinarily reside in Hong Kong, some foreign investors who open a company here do decide to remain in the Special Administrative Region. In this case, they will require a visa/entry permit that grants them residency rights.
Sole proprietorships and partnerships in Hong Kong
The sole proprietorship is the simplest form of business in Hong Kong and also the easiest to set up. The business is owned and conducted by a single individual who is liable with all his or her assets. Because there is no distinction between the individual and the sole proprietorship, this type of business can be seen as a riskier one but it also has the great advantage of complete ownership.
Partnerships in Hong Kong are set up by two or more individuals who will run a business and will share the profits made. The general partnership is formed between individuals who become liable for the debts of the partnership. It is easy to set up and this type of business can benefit from the experience brought together by the founding partners. Unlike in a general partnership, in a limited partnership, not all of the members are fully liable for the debts of the business, the liability of the limited partner is only as extensive as the amount of the capital investment. The limited partner cannot manage the partnership.
Branches and representative offices in Hong Kong
Foreign companies can also open a representative office in Hong Kong. However, this business structure does not have legal capacity and may be used for a limited scope of business, such as promotional activities or market research. Some companies may find that this type of office is a suitable first step for testing the Hong Kong market, before opening a branch or a subsidiary here.
The branch is an extension of the parent company abroad. It is limited to performing the same business activities and having the same name. An important characteristic is that the branch is not a separate legal structure – the foreign company that opens a Hong Kong branch is fully liable for this branch’s debts and liabilities.
The alternative to the branch or the representative office is the subsidiary- a locally incorporated company (usually a private limited liability company) that is partly owned and controlled by the foreign company. Unlike the branch, the subsidiary can engage in different activities and share all the characteristics of the business form under which it operates.
If the representative agent appointed to oversee the activities of the branch is a foreign national, temporary residence is required. Our immigration lawyers in Hong Kong can answer your questions.
Changing the company particulars in Hong Kong
Regardless of the type of company in Hong Kong investors choose to register, they have ongoing requirements to report any changes brought to that respective business form.
Our Hong Kong lawyers list some of the most important ones that are to be notified to the Registrar of Companies and to the Commissioner:
- Registered office changes: notified to the Business Registration Office within 1 month of the change; the information should include the new business registration number and the new business name; the date of the change is also included in the notification;
- Company name changes: also notified no later than 1 month from the date of the change; any business name change takes place as per the regular company name requirements and without infringing any already registered company names;
- Partner’s retirement: applicable in the case of partnerships, with the exception of the limited partnership fund; the retirement should be notified within one month of the change;
- Change in the number of partners: when a change in the number of partners results in a change of business type (from sole trader to partnership, or vice versa) this needs to be notified in order to change the business registration certificate for the respective legal entity.
Our Hong Kong lawyers can give you more information about the notification periods for any changes to the business particulars.
The taxation principles for the types of companies in Hong Kong
Taxation is another important issue when choosing a suitable business form. Locally incorporated companies are taxed on their income derived from Hong Kong and branches are taxed in the same manner as subsidiaries.
The following taxes apply in the case of corporations in Hong Kong:
- Corporate income tax: 8.25% on the first HKD 2 million and 16.5% on the rest of the taxable profits;
- Withholding tax: 0% in case of dividend, interest and royalties payments;
- Social security contributions: 5% of the employee’s relevant income; our lawyers can give you more details about the minimum and maximum income levels;
- Property tax: the standard rate is 15% of the net assessable value of the property.
Hong Kong does not levy a sales tax or a value-added tax. No payroll tax, capital duty, transfer tax, or net wealth and inheritance taxes are in place.
Sole traders are taxed on their individual income. The personal income taxes in Hong Kong are 2% for a net chargeable income of up to HKD 50,000, 6%, 10%, and 14% for income between HKD 50,001 and HKD 200,000, and 17% for income over HKD 200,000.
Hong Kong has signed more than 40 double taxation agreements that allow for beneficial measures.
We can also answer your questions if you are interested in immigration to Hong Kong.
If you want to know more about the advantages and disadvantages of each type of company in Hong Kong, you can contact our attorneys in Hong Kong, we will help you make the most suitable business decision.