Hong Kong is known for its favorable business environment for startups and SMEs. And among various business types in Hong Kong, private limited companies remain the top choice.
Governed by a robust legal framework, these entities are characterized by their flexibility, limited liability structure, and strategic positioning within the global market.
How is the private limited company structured and what are the benefits? Let’s find out.
What is a Hong Kong private limited company?
A Hong Kong private limited company, often referred to as “Ltd” or “Pvt Ltd”, is among the most popular business models in this jurisdiction. This model offers personal asset protection from business liabilities since it is a separate legal entity from the owner.
As stated in the Hong Kong Companies Ordinance, which came into effect on 3 March 2014, Private Limited Companies (also known as Private Company Limited by Shares) are among 5 different company types that can be formed.
In Hong Kong, it would not be an exaggeration to say that this is the most commonly used business entity for SMEs and trading companies.
Advantages of private limited company
Ease of setting up
A private limited company can be established rather quickly. Normally, it only takes 24 hours to register one. Not to mention the fact that you can use company formation services from a reliable provider to open an enterprise for you on your behalf.
Shareholders
This type of business entity can be started with a minimum of 1 member (and a maximum of 50 members), 1 natural director, a Hong Kong local secretary, and 1 registered office.
Separate legal status
A private company is deemed as a distinctive business entity that is separate from its members. Thus, it can acquire, dispose of assets, enter contracts, sue, and be sued under its name.
Limited liability
As mentioned above, the liability of each shareholder is limited. To make it clearer, if a private limited company runs into a loss, the personal assets of the shareholders of this company are not at risk. They can sell their company shares to clear the debt or liability.
Easy ownership transfer
Shares of a private company can be partly or wholly sold.
Strong public perception
A private company is more credible than other types of business entities in Hong Kong due to its stable business structure and other characteristics. Therefore, the ability to raise capital for a private company is better since banks and other financial institutions take it more seriously.
Tax benefits of a Private Limited Company
A private company is entitled to a favorable tax regime in Hong Kong. The first 2 million HKD of taxable income is taxed at 8.25%, the remaining amount is taxed at 16.5%.
Not only that, if you can prove that the earned income is generated from outside of Hong Kong, that income will be exempted from corporate income tax.
Disadvantages of private limited company
Heavy compliance requirements
There are many ongoing requirements that a private company needs to comply with. Just to name a few, the main requirements are holding annual general meetings, filing annual returns with the Companies Registry, filing tax returns with the Inland Revenue Department, and other maintenance requirements.
Information disclosure
Some certain information needs to be made available to the public.
Hassle dissolution
A private company may go through a complex winding-up because of debts to be closed down.
Procedure to incorporation
As one of the perks of a private limited company, the incorporation process is quite hassle-free. If you decide to set up a Private Limited company, then the very next thing to do is to pick an appropriate and unique name for your company.
After picking your company name, the next steps are deciding on your company structure and proceeding to register. The following documents are required to submit to the Companies Registrar (CR) to set up a Private Limited Company in Hong Kong:
- Application form
- A copy of the Articles of Association
- A copy of each passport, residential address proof for foreigners
- A copy of each Hong Kong ID card (for Hong Kong residents)
- Copies of all company documents for corporate shareholders
After preparing all the required documents as listed above, here are two main steps in the process of Hong Kong company formation:
- Applying for approval of the proposed company name with the CR
- Submitting all required documents to the CR
Have you ever wondered how much it would cost you to start your business in Hong Kong? Try out our Hong Kong cost planning quiz for useful cost estimation of your company.
The final step in this formation sequence is to be aware of all your compliance obligations such as tax filing timelines and renewal fees. Staying on top of your corporate compliance is key to maintaining a stable level of growth for your business.
Some notable annual maintenance and compliance requirements are as follows:
Renewal of registered office and company secretary
All companies in Hong Kong are required to have a registered office, staffed with a corporate secretary to handle administrative tasks. This means that you will be subject to an annual renewal fee which will usually be included in the invoice sent from your registered agent on the anniversary date of your company.
Filing of annual return
You will need to file an annual return typically within 42 days after your company’s incorporation date. Note that failure to comply with the said timeline will result in either a court-issued fine or even prosecution depending on the severity of your non-compliant case.
Book-keeping and annual statutory audit
The ambit of corporate auditing applies to all companies in Singapore. Your company will need to prepare financial statements and enlist a third-party accounting firm in Hong Kong to perform the procedural audit on the provided financial statements. Note that the service cost is dynamic and depends on variables such as the turnover amount, nature of business, and transaction volumes.
You can find further information on compliance matters via the Companies Ordinance (Cap.622).
Tips
Check out our Guide to Countries’ Annual Compliance for a more compact overview of your Hong Kong private limited company.
To wrap up
Hong Kong private limited companies are an excellent investment option for SMEs due to their favorable business environment and minimal entry requirements.
No matter if you’re a new entrepreneur or already conducting business in this jurisdiction, this may be the path to success for you. Further, with our company formation services, your private limited company is ready to go within only hours.
However, forming a company is not something to decide in a rush. In case you need further consulting, our experts are always available to assist you. Simply drop us your questions at service@bbcincorp.com for support today.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
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