Should I choose a limited company or an unlimited company to start a business? What is the difference between a limited company and an unlimited company? (With a list of company registration process and required documents)
According to the Hong Kong Companies Ordinance, the shareholders of a limited company shall be liable for the debts of the company by the amount of capital contributed, what are the advantages of choosing a limited company? What are the advantages of choosing a limited company? In this article, we will introduce the difference between a Hong Kong limited company and an unlimited company as well as the points to note.
Limited and Unlimited
Before setting up a company, first you need to choose the type of company, the type of company in Hong Kong can be simply divided into limited companies,UnlimitedThe meaning and most obvious difference between limited and unlimited is the extent of the shareholders' liability to the company in the course of its business, and the following are highlights of the difference between the two.
limited company
Limited company means a company with limited liability. The company has the status and responsibility of an independent legal person, and the shareholders are only liable for the debts of the company by the amount of their own capital contribution in the statutory position, that is, when the company is in debt, the shareholders' liability to the company is restricted to the upper limit of their capital contribution at that time, and the debts will not affect the shareholders' personal property, so the creditors cannot ask the shareholders to pay for the company's debts from their own personal property.
There are two types of incorporation of local limited companies in Hong Kong:
corporation: The liability of the members of a company is limited, in accordance with its articles of association, to the amount unpaid on the shares held by each member respectively.
The Guarantee Company Limited: A company has no share capital and the liability of the members of the company is limited to the amount which each member has respectively undertaken by his articles of association to pay as an asset of the company in the event of its winding up.
Unlimited Company (Sole Proprietorship / Partnership)
Unlimited company means unlimited liability, i.e. if the company does not have sufficient funds to pay off its debts, the proprietors and partners will have to assume the company's liabilities and use their private property to repay the debts. There is no separate legal identity, so the proprietor cannot enter into a contract in the name of the company, i.e. the proprietor or partners can only enter into a contract in their private names, so when operating a company in the unlimited company mode, they cannot enter into a contract in the form of a company as the main body.
Limited VS Unlimited
| limited company | Unlimited | |
|---|---|---|
| Eligibility | Hong Kong resident, non-Hong Kong resident or Hong Kong registered limited company. | Hong Kong residents, Hong Kong permanent residents and non-Hong Kong residents are required to appoint a Hong Kong resident as the company's agent. |
| Responsible Organisations | Companies Registry | Inland Revenue Department |
| Application Form | NNC1 or NNC1G | IRBR 37A |
| legal status | Independent legal person who can enter into contracts as a company | Non-independent legal person who can only enter into contracts in his personal capacity as proprietor |
| Debt problems | Shareholders' liability limited to share capital | The proprietor has unlimited liability for the company. |
| Sustainability | A company has perpetual existence unless it is wound up or dissolved | Bankruptcy or death of the proprietor or partner necessitates liquidation or dissolution of the company |
| taxation | Need to arrange for an independent accountant to do the financial reporting and auditing and submit the audit report to the Inland Revenue Department annually | Only the owner needs to file a tax return |
| tax rate | Taxable profit of more than HK$2 million: 16.5% Taxable profit less than HK$2 million: 8.25% | Taxable profit of more than HK$2 million: 15% Taxable profit less than HK$2 million: 7.5% |
Company Registration Process and Required Documents
The difference between a limited company and an unlimited company is that a limited company requires company registration and business registration, while an unlimited company is simpler than a limited company in that it only requires business registration.
In addition, there is a slight difference between the documents required for the registration of a limited company and an unlimited company. The following are the differences between the documents required for the formation of a limited company and an unlimited company.
Open Ltd.
1. Preparation of documents
The incorporation of a limited company requires the preparation of three forms, namely the Incorporation Form, the Memorandum and Articles of Association and the Notification to the Business Registration Office.Local companies and registered non-Hong Kong companiesPage acquisition.
2. Submission of application for registration
You can choose to submit your application and pay the fee electronically by EPS or CR, by sending a copy by post or in person at the Companies Registry.
3. Obtain Business Registration Certificate and Certificate of Incorporation.
Certificate (Business Registration CertificateThe e-certificate will be issued under the Certificate of Incorporation, Certificate of Incorporation and Certificate of Incorporation. The e-certificate will be issued under the Certificate of Incorporation, Certificate of Incorporation and Certificate of Incorporation.
Open Unlimited Inc.
1. Selection of application method
You may choose to apply online through GovHK, by post or in person at the Business Registration Office and pay the application fee.
2. Application Form
Choose to obtain a Business Registration Certificate application form by mail or in person at the Business Registration Office, 需要電郵至taxbro@ird.gov.hk, by post or by fax to 2824 1482 by completing form IRBR194.
3. Submission of Application
In the form, you need to fill in the company name, company address, date of commencement of business, etc. Simply fill in the business registration form, together with a copy of the identity card of the proprietor and partners and proof of address, and pay the fee for the Business Registration Certificate (currently $150 in 2024), and submit it to the Business Registration Office at the 4th floor of the Revenue Tower, and you can receive the Business Registration Certificate the earliest possible time.
Starting a business with a limited company or an unlimited company?
Is it better to start an unlimited company or a limited company? When starting a business for the first time, I believe we are all confused. Lonfon provides you with the following factors to consider, so that you can quickly assess whether a limited company or an unlimited company is more suitable:
Development
If you plan to operate in Hong Kong on a long-term basis and intend to expand your business in the future, setting up a limited company is a better option.
The structure of a limited company provides more adequate legal protection and independent legal status. Even if the company changes hands or one of the shareholders withdraws its capital, the company can continue to operate and its business development can be stable and sustainable.
An unlimited company does not have a separate legal personality, and if the capitalist divests himself of his capital or passes away accidentally, the company will not be able to continue to operate or sustain its development. However, if the company is a small business, such as a food stall, a freelance worker, or a one-person company, the choice of setting up an unlimited company is simple in comparison with that of a limited company.
Economic Level
When the company needs to develop the lack of capital, you may think of looking for investors or loans, if you are an investor or bank what companies would you invest or lend money to? If you are an investor or a bank, what kind of company would you invest or lend money to? Of course, a company with transparent income and expenditure and profitability is more attractive for investors to invest in a limited company. Limited companies are legally limited to shareholders' liability for the amount of capital invested, and are required to have their financial affairs audited by an independent accountant every year, which makes their financial affairs clearer and more attractive in terms of obtaining capital and financing from investors.
Unlimited companies are less attractive to investors as the owners/partners are only required to keep accounting books and documents to file tax returns in a timely manner, and there is no requirement to have financial statements audited.
Risk Management
The main characteristic of a limited company is that it has an independent legal personality, which means that when a company encounters debt problems or legal proceedings, unless the shareholders have signed certain documents of guarantee, the private property of the shareholders is usually not involved and they will not be affected by the proceedings.
As unlimited companies do not have independent legal status, shareholders need to sign contracts in their personal capacity and be liable for the debts of the company without any limit. If the company is in debt, shareholders will have to use their personal money to offset the debts and bear the business risks, and if the business amount of the company is too large, such as engineering, wholesale and trading, unlimited companies are not recommended.
Conclusion
A Hong Kong Limited Company is a popular choice whether you are a start-up or an existing business. 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 that you comply with the relevant laws and regulations.
If you have any questions about registering a Hong Kong company, please feel free to contact our team of business consultants. We provide one-stop business consultancy services from registering a Hong Kong company, opening a company account and secretarial services to help you start your business blueprint!
Extended reading: "TheHong Kong Company Lazybones】Hong Kong Company Formation Process, Fees, Time and Frequently Asked Questions in One Article》