Limited Partnership In Hong Kong: A Potential Choice For Running A Business

In the dynamic landscape of global entrepreneurship, Hong Kong stands out as a prominent jurisdiction with its ease of doing business. Within such an environment, selecting a suitable business model becomes even more crucial.

For those seeking limited liability and a collaborative venture, forming a limited partnership becomes a potential choice. To help you make the right decision, today’s article explores the functioning, benefits, and other aspects of this business structure.

What is a Hong Kong limited partnership?

As defined in the Partnership Ordinance, a partnership is formed when two or more people join forces to do business with a common intention for profit.

There are two types of partnerships in Hong Kong:

• A general partnership where every partner has unlimited liability for all debts and obligations of the company; and
• A limited partnership where some partners have unlimited liability and others are only partly liable.

Limited partnership is a form of business structure that combines the features of a partnership and having limited liability. This entity type is established and governed under the Limited Partnership Ordinance.

The limited partnership must be based on an agreement between one or more persons as general partners, and one or more persons as limited partners:

• General partners are personally liable for all firm debts and obligations. They make decisions that affect the business’s day-to-day operations.
• Limited partners are only liable to the extent of their contributed property or capital amount. Hence, they shall not participate in the firm management or have the power to bind the firm.

It’s crucial to emphasize that limited partnerships need to undergo registration with the Companies Registry, ideally after the signing of the agreement. To put it simply, when the entity is not registered, it becomes a general partnership by default.

How does this model benefit your business?

When doing business in Hong Kong as a limited partnership, there are several noteworthy advantages associated with this business structure.

Limited liability protection

If you are aiming for limited liability in the company, becoming a limited partner is a suitable option. Upon this choice, your personal assets are generally protected in case of debts, and your financial exposure is only to the investment amount in the partnership.

Thus, limited partners are not to be held responsible for the wrongdoings of other partners.

Flexibility in management

Limited partnerships allow for a combination of general partners, who actively manage the business and have unlimited liability, and limited partners, who contribute capital but are not extensively involved in daily operations.

This flexibility becomes especially advantageous for businesses with diverse ownership and management requirements. Different partners can contribute in ways that align with their strengths and preferences.

Moreover, the business is allowed to replace limited partners without dissolving the entire partnership. Changes in ownership or the introduction of new investors can be accommodated without disrupting the ongoing business operations.

Ease of formation

Establishing a limited partnership in Hong Kong is a relatively straightforward process and can be done completely online. Once the necessary documentation is submitted to the Companies Registry, the firm can be registered within less than a week.

Furthermore, various benefits linked to this type of entity make it appealing to numerous foreign investors, thereby simplifying and improving the capital attraction process.

Simple maintenance and compliance

In terms of management, specifying decision-makers as general partners in the agreement minimizes the likelihood of disputes and streamline the process of identifying individuals in charge of business strategies, leading to a more efficient decision-making structure.

Additionally, limited partnerships face fewer legal regulations and reporting requirements compared to other structures. However, it remains essential to have a well-drafted partnership agreement and conduct annual general meetings promptly.

Are there any drawbacks to partnerships in Hong Kong?

Besides the advantages, there are also some disadvantages to consider when opting for this business structure.

Restrictions on management

Limited partners are only required to be passive investors, which is an advantage when raising capital. However, they are also not allowed to be involved in the decision-making process, dissolve a partnership, or consent to the introduction of new partners.

While this helps limit their sense of responsibility compared to general partners, it might lead to conflicts if the business structure isn’t properly managed or when the parties don’t take responsibility for their actions.

Unlimited liability for general partners

General partners bear unlimited personal liability for the company. In the event of a lawsuit from a customer, this aspect could significantly affect their assets. Thus, unlike limited partners’ interests, a general partner’s interest in the partnership is more complex to transfer.

Deciding to form a limited partnership or explore other Hong Kong business structures is an important first step. A thorough consideration of the entity’s pros and cons is essential for finding the right answer.

What is the process of forming a limited partnership?

After understanding the basic features of a Hong Kong limited partnership, it’s time to explore the process of forming and registering one. Let’s begin.

Step 1: Draft a partnership agreement

A partnership agreement serves as a contractual foundation that specifies the terms and conditions governing the firm. This document is crucial for the smooth operation of the joint business.

• The detailed information generally includes:
• Roles and responsibilities;
• Contributions of the partners;
• Profit-sharing arrangements;
• Decision-making procedures;
• Dissolution terms;
• And so on.

Once the mutual agreement is confirmed by all parties and adhering to the Limited Partnership Ordinance, your business is now formed as a general partnership.

Step 2: Register the entity with the authority

Changing the business status to a limited partnership requires registering it with the Hong Kong Companies Registry (CR)

To do that, simply submit the following documents and fees to the CR:

• Form 1 – Application for registration of a limited partnership;
• HK$340 as a registration fee; and
• An HK$8 fee for every HK$1,000 (or part of HK$1,000) of the sum contributed by each limited partner.

This can be done in person at the Companies Registry on the 14th floor of the Queensway Government Offices; or through the e-Registry online site.

Step 3: Receive the Certificate of Registration

Following the approval of the relevant authority, the issuance of the Certificate of Registration for a Limited Partnership typically takes approximately 5 working days. Once processed, the certificate will then be sent to the individual or entity who submitted the application.

Once the entity is registered with the authorities, the liabilities of the partners will be assumed according to the Partnership Agreement. And with the successful registration of your limited partnership, you are now ready to embark on your business endeavors.

How do you update changes in the partnership?

If any changes occur during the continuation of a limited partnership, such as alterations in:

• The firm name;
• The business nature;
• The principal place of business;
• Partners (including names);
• The term or character of the partnership;
• The sum contributed by any limited partner; or
• A general partner changing into a limited partner and vice versa.

These modifications must be documented and reported to the Registrar of Companies within 7 days. This involves submitting a statement following Form 2 – Notice of change in the limited partnership to specify all the changes in detail, and the relevant fees (if applicable).

To wrap up

In summary, a Hong Kong limited partnership is a strategic and adaptable business model, especially if the entrepreneur is aiming for limited liability protection while collaborating closely with a trusted partner in this dynamic economy.

This business model is straightforward to establish, easier to manage compared to other structures, and provides more opportunities for global investors to engage in business activities within this robust jurisdiction.

However, if you’re exploring alternative options or require additional information on doing business in Hong Kong, simply get in touch with us today via service@bbcincorp.com. Our dedicated support team is ready to offer help!

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