Hong Kong Limited Company and beyond – Corporate forms in Hong Kong

Hong Kong Limited Company and beyond

The companies available in Hong Kong are essentially internationally comparable. Companies may be established as a Hong Kong Limited Company or a branch of an existing foreign company. In addition, it is possible to operate as a Sole Proprietor or in a Partnership.

There are considerable differences when it comes to the establishment of the different corporate forms in Hong Kong. Usually foreign entrepreneurs incorporate and do business in form of a Hong Kong Limited Company.

Hong Kong Limited Company

A Hong Kong Limited Company is an independent legal entity and can acquire duties and rights in its own name. A Hong Kong Limited Company may be established by one or more shareholders and must have at least one director. There are no restrictions on the residence of these persons. The liability of the shareholders is limited. There are no statutory requirements on the capital of a Hong Kong Limited Company.

A Hong Kong Limited Company generally requires a Company Secretary. A Company Secretary has to ensure that the Hong Kong Limited Company complies with the legal requirements of the Hong Kong Companies Ordinance. In addition, the Company Secretary is obliged to keep company documents up-to-date and to document any changes. There are no compelling requirements for the Company Secretary, except that the Company Secretary has to be a resident of Hong Kong, should a company be appointed as Company Secretary, then it must be registered in the Hong Kong Companies Registry. However, the director of a one man Hong Kong Limited Company cannot be Company Secretary.

The incorporation of a Hong Kong Limited Company is fast and standardised. The company name, the names and addresses of the shareholders and the directors, as well as the details of he Company Secretary, the amount of the capital to be paid in, and the number of shares to be issued must be provided to the Hong Kong Companies Registry in Hong Kong. In addition, the Articles of Association of the Hong Kong Limited Company must be filed. As experienced consultants, Mühler McKay can adapt the Articles of Association specifically to the needs of the shareholders and the business.

Each Hong Kong Limited Company is required to apply for a Business Registration Certificate and to permanently maintain it. In addition, a Hong Kong Limited Company has to file the Annual Return with the Hong Kong Companies Registry each year at its anniversary. The renewal of the Business Registration Certificate and the submission of the Annual Return are normally done by the Company Secretary. Furthermore, each Hong Kong Limited Company is required to keep its accounting record up-to-date and needs to prepare audited accounts every year. These must be drawn up and signed by an auditor approved in Hong Kong. The accounting record and the auditor’s report are not public, as long as the Hong Kong Limited Company is not listed on Hong Kong Stock Exchange.

Branch

In addition, foreign companies can open a branch office in Hong Kong. A branch office must be registered with the Hong Kong Companies Registry within one month after commencement of business. It is necessary, to present some documents of the parent company to the Hong Kong Companies Registry. With registration, a branch may acquire rights and obligations in principle, and may participate in business as a Hong Kong Limited Company.

However, the branch is not legally independent, so that the parent company is potentially at risk of being sued in its home country and in Hong Kong. The parent company must also register its balance sheets, etc. with the Hong Kong Companies Registry, provided that it is obliged to publish those in its home jurisdiction.

Representative Office

A Representative Office is limited in terms of possible business activity. It may only conduct business which cannot generate profits. Allowed activities include market research and marketing but the Representative Office is prohibited from entering into contracts in its own name. A Representative Office needs an already established foreign parent company. In addition, a Hong Kong-based Authorised Representative is required. In most cases, this is a natural person in charge of receiving  official correspondence.

The establishment of a Representative Office constitutes a simple request to the tax authorities. A certified copy of the certificate of incorporation of the parent company is required for the creation.

Annual Return as well as Business Registration Certificate requirements are the same as for a Hong Kong Limited Company.

Sole Proprietorship

A Sole Proprietorship is not a legal entity and does not separate the founder from the Company. The Founder is personally responsible for all liabilities with his private assets.

Partnership

A partnership is the amalgamation of several persons to jointly operate a business. Partnerships can be established as General Partnerships and Limited Partnerships. General Partnerships are similar to the Sole Proprietorship and involve a personal liability of all partners. Limited Partnerships consist of unlimited liable partners (General Partners) and limited liable partners (Limited Partners). A general partner is required to operate the business. The Limited Partners are liable only with their contribution, but are excluded from the management by law. The unwanted liability situation can be solved by using a Hong Kong Limited Company as a general partner, thus limiting the liability of the General Partner to the Hong Kong Limited Company. Investors can be on-boarded to the Limited Partnership as Limited Partners. From a taxation point of view, it is nevertheless a Limited Partnership which is taxed on a personal level. However, with appropriate planning, such a structure can offer significant advantages over a traditional Hong Kong Limited Company. However, specific tax implications must be observed from the outset, since it is a partnership.

Joint Venture

It is possible to enter into a joint venture with a partner. In case of a joint venture, a Hong Kong Limited Company is normally incorporated, which is owned jointly by the parties to the joint venture agreement.

With such a structure, attention must be drawn towards the joint venture agreement. There might be an increased need for consultation for foreign companies, as the Hong Kong legal system with different regulations from the respective home jurisdiction is involved. In the long term nobody wants a partner who can block the business. For a joint venture, a worst-case scenario is imperative.

Summary

A Representative Office is the easiest and fastest way to explore the market, but the limitations make it very disadvantageous. Accordingly, a representative office is usually only worthwhile in very special cases. However, all costs for establishing the Representative Office and the ongoing and recurring costs of the Representative Office are tax deductible costs for the parent company.

A Hong Kong Limited Company, on the other hand, has no such limitations. It is characterised by a simple structure. In addition, only Hong Kong Limited Company documents must be submitted to the Hong Kong Companies Registry and kept up-to-date. The liability of the shareholders is limited to the share capital, so that potential losses of the Hong Kong Limited Company are limited. A Hong Kong Limited Company is regraded the ideal business vehicle in and for business in Asia.

We appreciate the opportunity to consult you in regard to the chances of your new business in Hong Kong and Asia. Mühler McKay provides supporting services for business operations such as assistance with incorporation services / company formation services, advising on tax efficient legal structures for (groups of) companies (corporations, for instance a Hong Kong Limited Company, partnerships, branches, representative offices), bookkeeping and accounting (according to Hong Kong principles) as well as audit arrangement, general corporate compliance like provision of company secretarial services (in Hong Kong) as well as providing registered office addresses (in Hong Kong), obtaining obligatory registrations, permits and licenses, as well as employment advice and general international tax services.

Mühler McKay offers comprehensive services which include arranging businesses and operations in a tax efficient manner in order to bring down your effective global tax rate, satisfy international tax compliance obligations and mitigate taxation risks.

Please contact us or visit us in Hong Kong for your first consultation for our incorporation services / company formation services of a Hong Kong Limited Company or a different corporate form.

Mühler McKay based in Hong Kong is a business advisory firm with worldwide reach and renders, among others, services in regard to a Hong Kong Limited Company or other corporate forms to a diversified international client base from various industries and sizes.