Set up company in Hong Kong: Business entities

Set up company in Hong Kong

What factors are to be considered while choosing a business entity type in Hong Kong?

Choosing the suitable business form is an important business decision and investors can start by taking into account a number of important issues:

• The start-up costs: a sole trader or a partnership will have lower start-up costs compared to a corporation (especially a public limited liability company); if the start-up budget is an issue, estimating the overall start-up costs is the first step.
• The level of control: full foreign ownership is permitted in Hong Kong, thus foreign investors have no issue in terms of whether or not they are allowed to control the company.
• The level of liability: this is an important issue to consider because business forms like the sole trader have the highest level of liability, meaning that the founder is liable with his own assets for the business; this is not an issue in the case of the private limited company which has separate assets from those of the founder.
• Taxation, Hong Kong has a low taxation regime; corporations and branches are taxed using the same corporate income tax rate; the personal income tax that may apply in the case of the sole trader is different. Tetra Consultants team of tax experts who specialize in company formation in Hong Kong can provide you with more details.
• Transferability and continuation, how or if the business will move on in case the founder retires or after its death; corporations allow for adequate continuity and shares can be transferred or purchased accordingly (depending on company particulars and whether or not it is a private or a public one).

Types of Business entities available in Hong Kong

Public company limited by shares 

 This type of entity is the most chosen by large corporations to conduct business and trade. 

• Required at least two directors, one member, Hong Kong local secretary, and a registered office.
• Corporate directors are not allowed
• Can be more than 50 shareholders

Share capital:

• The liability of its members is limited up to the unpaid amount of shares held by each shareholder
• No requirement of minimum share capital
• No bearer shares & shares have no pare value
• Shares can be freely traded.
• Shares of a public company may or may not be listed on the Hong Kong Stock Exchange.
• The company’s profits can be distributed to its shareholders

Public company limited by guarantee

A company limited by guarantee has no share capital. It has members, rather than shareholders, who guarantee/undertake to contribute a predetermined sum to the liabilities of the company which becomes due in the event of the company being wound up. The advantages are that the members enjoy limited liability and retain democratic control over all matters. The minimum requirements for a company limited by guarantee are:

• Required at least two directors, one member, Hong Kong local secretary, and a registered office.
• Corporate directors are not allowed
• Can be more than 50 shareholders
• A company limited by guarantee does not have share capital
• The liability of its members is limited to an amount agreed to contribute in the event of the company’s liquidation
• The profits cannot be distributed among the members

Limited liability company (LLC)

If you are looking to set up a company in Hong Kong, our recommendation will be to set up a limited liability company (LLC). Regardless of onshore or offshore business, this is the most common business entity used by foreign entrepreneurs. As per Hong Kong Companies Registry, a limited liability company is a separate legal entity, distinct from its shareholders and directors. You will be able to enjoy exemption from tax on corporate income received from overseas profit, regardless of whether your corporate bank account is in Hong Kong. Tetra Consultants will supply our international clients with company numbers within 1 week. The minimum requirements for a limited liability company are:

• 1 shareholder of any nationality
• 1 director of any nationality
• 1 Hong Kong company secretary
• A Hong Kong registered office address
• No minimum paid-up capital

Branch in Hong Kong

• A branch office in Hong Kong is not a separate legal entity under the Companies Registry. It is an extension of the parent company. Although a branch can undertake commercial activities, it has no ownership rights; subsequently, its parent company has full liability for all the debts and obligations of the branch.
• A foreign corporation that wants to establish a branch in Hong Kong must register with the Company Registry to obtain a certificate of registration as a non-Hong Kong company. A branch must also be registered with the Business Registration Office of the Hong Kong Inland Revenue Department. Same as any other business entity, a branch office is required to have a local company secretary and registered address.
• A branch office is an extension of the parent company and can only conduct business activities in Hong Kong similar to that of the parent company. The parent company is 100% shareholder and is fully liable for the debts incurred by the Hong Kong branch office. It is mandatory to appoint a Hong Kong company secretary.
• A branch office is sometimes mistaken for a subsidiary. Investors often choose to have a subsidiary to be apart from their counterparts and to enter the market. It is impossible to incorporate a subsidiary under the Companies Registry, so businesspeople usually set up private limited companies as their subsidiaries in Hong Kong.

Representative Office

• A representative office or liaison office is an entity type designated only for companies formed outside of Hong Kong. A representative office must be named the same as its parent company. Only Business Registration Office can handle the liaison office. It is not allowed to conduct business in Hong Kong, but an annual tax return with “NIL” filing is required. 
• A liaison office must have a local representative to contact for government records. This entity type is chosen mostly for the purposes of promotion, advertisement, and marketing research in Hong Kong. It also plays a role as the point of contact to reach potential and local customers (Customer Supporting Service Center), and to build up relationships with Hong Kong suppliers.
• A representative office is only allowed to conduct market research and marketing for the parent company. It is not allowed to sign contracts, sales agreements, and earn income in Hong Kong.

Contact us to find out more about how to set up business in Hong Kong. Our team of experts will revert within the next 24 hours.