Abstract: There are limited and unlimited companies in registered Hong Kong companies, and a limited company is responsible for the company’s debts with the amount of capital contributed by shareholders, whether it applies to all situations, and what are the advantages of choosing a limited company? This article will introduce the differences between Hong Kong limited company and unlimited company and precautions.
The difference between a limited company and an unlimited company
Before setting up a company, you must first know what types of companies there are, the types of Hong Kong companies can be simply divided into limited companies and unlimited companies, is it better to open an unlimited company or a limited company? It is recommended that you choose which kind of company to establish from the end of the company and the scale.
A limited company is a limited liability company, the company has independent legal status and responsibility, and the shareholders only need to be responsible for the company’s debts with their own capital contribution in the legal status, that is, when the company’s debt settlement obligation of the shareholders is the upper limit of the capital contribution, creditors cannot require shareholders to pay the company’s liabilities with private assets. Since a limited company is a separate legal person, there is a common permanent continuity, that is, even if the shareholder goes bankrupt or dies, it should not affect the operation of the company.
Because the company has an independent legal status, it can sign an agreement in the name of the company, and the company as the main body can obtain a high sense of trust for the cooperative enterprise and multinational institutions, which is conducive to the establishment of long-term cooperative relations.
In addition, limited companies are also conducive to obtaining loans and government subsidies, and many bank loans and government subsidy policies need to meet the conditions of being a limited company, and it is more appropriate to open a limited company if there is a plan that the business will actively expand.
Accounting and taxation: However, the accounting and auditing costs of a limited company are usually higher, requiring the company to be audited by a certified public accountant and submit an annual return to the Inland Revenue Department. In terms of taxation, if the chargeable profit of a limited company is less than HK$2 million, the tax rate is calculated at 8.5%計算，超過200萬港幣的部分則按16.5%
Responsible body: Registrar of Companies
There are two types of local limited companies incorporated in Hong Kong:
The liability of the members of the company is limited to the unpaid amount of the shares held by each member in accordance with its articles of association.
Company limited by guarantee
The company has no share capital and the liability of the members of the company is limited to the amounts that the members undertake to pay as assets of the company upon winding up by virtue of their articles of association.
Unlimited Company (Sole Proprietorship / Partnership)
Many people think that the difference between an unlimited company and a limited company is that the proprietor or partner of an unlimited company is liable for the company’s debts without limitation, that is, if the company does not have sufficient funds to repay the company’s liabilities, the proprietor and partners need to repay them with private property. Similarly, if the owner or partner goes bankrupt or dies, the company must be dissolved. In terms of headcount, a sole proprietorship can only have one owner, while a partnership has a maximum of 20 owners.
However, an unlimited company does not have an independent legal personality, so the proprietor cannot enter into a contract as a company, that is, the proprietor or the partner can only sign a contract in a private name, so when operating a company in the form of an unlimited company, it cannot be contracted with the company as the main body.
Accounting and tax: Unlimited companies seem to have more disadvantages than limited companies, but the simple application procedures are the first choice for many sole proprietorships, and there is no need for certified public accountants to audit, only annual settlement and tax declaration, in this regard, you can save a lot of costs, small businesses such as online stores, snack shops, stols and other working capital needs are lower or freelancers, etc., if there is no idea of expanding the business, you can set up a company with an unlimited company to meet the demand.
In terms of tax rate, the tax rate for unlimited companies will also be lower, with profits not exceeding HK$2 million, with a tax rate of 7.5%, and the excess part is 15%.
Responsible body: Tax Department
Choose 5 elements of a limited company
When choosing, you may wish to consider the following 5 elements first, if the following elements apply, it is more suitable to incorporate a Hong Kong limited company:
Business growth and expansion
If you are planning to operate and expand your business in Hong Kong for a long time, setting up a limited company is an ideal option. A limited company structure provides greater financial and legal protection, allowing your business to be more stable and sustainable.
Investment and financing
Limited companies are more attractive in attracting investment and obtaining financing. As a legal entity, a limited company is able to issue shares and attract investors, and further capital injections can support business expansion and increase competitiveness.
Responsibility and risk management
The main feature of a limited company is the limited liability of the shareholders. This means that in the event of a corporate debt problem or legal action, the private property of shareholders is usually not affected. Setting up a limited company can protect personal assets and mitigate personal risks. The company will not be affected by the bankruptcy or death of shareholders.
Business cooperation and partnership
If you plan to work with other business partners, setting up a limited company is a good option. A limited company provides a clear legal framework and shareholder equity to better manage the partnership and allocate responsibilities.
Credibility and professional image
Limited Company enjoys a good reputation and professional image in the market. Compared to other structures, the limited company conveys a more credible and stable message, which helps to build a relationship of trust with customers, suppliers and partners.
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Whether you are a start-up or an existing business, a Hong Kong limited company is a popular choice. However, it is advisable to consult a professional company secretary or legal advisor before making a final decision to ensure that your business needs are met and relevant laws and regulations are complied with.
If you have any questions about Hong Kong company registration, please feel free to contact the Langfeng Business Consultant Team, we provide one-stop business advisory services, from Hong Kong company registration, company account opening and secretarial services to help you start your business blueprint!