Although it is not difficult to form a company in Hong Kong, there are many details to consider. The selection of company type is one of them since different companies carry different liabilities. If you are an entrepreneur and wondering which one you should choose, you will have a better idea after reading through this article where it summarizes the distinction between limited company and unlimited company.
A limited company is a legal entity with independent legal status. Therefore, a limited company can act as a defendant or plaintiff in legal proceedings, and own assets and sign contracts in the name of the company. An unlimited company does not possess the status of a legal entity. It is an asset jointly owned by the proprietor or partners in the private name, and the proprietor cannot sign contracts with the unlimited company.
One of the biggest differences between the two is the responsibility of debt. When deficit occurs in a limited company, its shareholders’ debts are limited to the amount of their capital contributions, hence bearing limited liability for the company’s losses. Even if the company is liquidated, the shareholders' private property will not be used to repay the debt. However, the proprietor of an unlimited company has unlimited liability and is liable for unlimited debts, and if necessary, the proprietor's personal property must be used to pay off the debt.
Accounting and Audit
A limited company has more tax filing procedures than an unlimited company. A limited company is required to have an accountant perform audit before filing tax, and needs to submit an audit report to the Inland Revenue Department every year. In contrast, an unlimited company is only required to have its proprietor to file personal income tax. In terms of profits tax, the assessable profit of a limited company for the first two million Hong Kong dollars is 8.25%, and the subsequent assessable profit is 16.5%; under the same amount, the assessable profit of an unlimited company is 7.5%, and the subsequent 15%.
Number of Shareholders
The shareholders of a limited company may consist of 1-50 shareholders. Unlimited companies can be categorized into sole proprietorships and partnerships. Sole proprietorships have 1 owner, while partnerships have 2-10 proprietors.
Hong Kong or non-Hong Kong residents can both form a limited company in Hong Kong. But, if the applicant is a non-Hong Kong resident, the company secretary must be a Hong Kong resident, or a limited company registered in Hong Kong. In addition, only Hong Kong residents can incorporate an unlimited company in Hong Kong. If the applicant is a non-Hong Kong resident, the applicant must entrust a Hong Kong resident to act as the agent of the company. Unlimited companies in HK do not require company secretaries.
Applicants for a limited company need to submit three application forms and two fees to the Companies Registry, they are Incorporation Form, Articles of Association, Notice to the Business Registration Office, and business registration fee and company registration fee. The approval period is approximately seven to ten working days. You can click here to check out the details of process and fee.
Applicants for an unlimited company can submit the application form and fee of business registration, and the form of sole proprietorship or partnership to the Companies Registry located at 4/F of the Revenue Tower in Wan Chai, or submit through e-Registry. The required information includes the company name, company address, opening date, a copy of the founder's ID card and proof of address. The business registration certificate can be obtained as soon as the same application day.
How to Choose Between a Limited Company and An Unlimited Company?
The procedures for incorporating and maintaining an unlimited company are less than that of a limited company. An unlimited company does not need to submit a company registration form, nor does it need to be audited by an accountant. Therefore, the cost of forming an unlimited company is relatively lower, hence suitable for small businesses with low fund. However, proprietor of an unlimited company bears greater risks, such as the unlimited liability for the company's debts and the risk of losing private property.
The cost of opening a limited company is relatively higher, a company secretary is also needed to be appointed. Limited companies have to employ an accountant to audit and prepare financial statements annually. Company registration fee is mandatory along with business registration fee. However, the protection to shareholders is higher since their liability is limited. No private property would be involved in liquidation. So, limited companies are more fitting to businesses with large turnover of capital, investments in which other investors will participate with a certain amount of funds in the future.
What to Do If You’re In Urgent Need of a Company?
If entrepreneurs have an urgent need of a company to make contracts or support other development, they may consider purchasing a ready-made company (also known as a shell corporation). A ready-made company has already completed the registration process, so it can operate immediately. It has no directors and distribution of shares, no bank account, and no business operations, debts and bonds. However, it should be noted that there could be ones with unclear background. There could be unfinished taxation and other commercial disputes for the present owner to tackle. You are best suggested to gain a deep understanding of the details of the ready-made company before investing.
Generally speaking, it is more common and safer to incorporate a limited company in Hong Kong, but small-scale business operators can consider an unlimited company to save operating costs. There are many brands on the market that can help entrepreneurs to form different types of company. OneStart Business Centre offer services to assist business starters setting up Hong Kong limited companies, unlimited companies, ready-made companies, and offshore companies to meet different needs, and solve the troubles encountered by entrepreneurs. For further assistance, feel free to call 3575 6888, or Whatsapp OneStart Business Consultants to learn more about company incorporation!
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