Category of Hong Kong Corporation

1. Sole proprietorship

Introduction

• Sole proprietorship is an enterprise managed by one person.
• The owner may monopolize all the profit;at the same time bear all the risks of the enterprise.

Advantages of running business in sole proprietorship

• Financial convenience - simple and inexpensive procedure. Sole proprietorship usually incurs less operation expenditure and the profit will not be shared with other parties. Also, the profits tax rate is lower than other forms of business.
• Flexibility in decision making - Prompt decision can be made as there is no consent requirement with other partners. A more effective operation can be achieved.
• Lenient legal restriction-There is less legal restriction compared with other forms of business.

Disadvantages of running business in sole ownership

• Unlimited liability - The main disadvantage of sole proprietorship is having unlimited liability. The owner is responsible for all the liability of the business and there is no independent legal status. The personal property of the owner can be part of the compensation if the company is not able to pay all the debts.
• Small scale - Since sole proprietorship is run by a single owner, therefore it lacks fund rising method and the scale of the business is relatively small.
• Lack of continuity - The business cannot be continued if the owner passes away, bankrupts or is imprisoned. As a result, the going concern of the business is almost dependent on the owner.

2. Partnership

Introduction

• Partnership is formed when several people agree to run a business together by signing legal covenant. All the partners are responsible for the unlimited liability of the business.

Number of partners

• 2-20

Launching procedure

• Setting up partnership company procedure is simple

Advantages of running business in partnership

• Wide scope of capital and scale
Capital can be funded by more people, therefore more capital can be raised;
• Greater development potential - At the capital funding and the management fields, partnership is more abundant and nimbler than sole proprietor , thus there is greater potential for the business development.

Disadvantages of running business in partnership

• Unlimited liability - It does not have independent legal status of the business, all the partners are responsible to bear all the liability of the business. When any of the partners is unable to undertake debt of his part, other partners must undertake his debt.
• Lack of continuity - The business cannot be continued if any of the owners is dead, bankrupt or imprisoned.
• Difference in opinion – decisions are needed to be comprised with all the partners, the decision making procedure will be more complicated. Lack of flexibility and efficiency may happen.

3. Hong Kong Limited company

Introduction

• Limited company is the most common business type in Hong Kong. Limited company refers to limited liability company.
• The corporation is formed by one or more individuals/corporations( but less than 50)

Documents needed:

• Proposed Company name(Chinese and/or English);
• Copies of ID card or passport and residential address of the shareholders
• Copies of ID card or passport and residential address of the directors
• Copies of ID card and address of the company secretary (if not using our secretarial services)
• Address of its registered office (If not choosing our secretarial services)
• Amount of the authorized share capital and proportion of issued share capital

According to the Hong Kong legal regulation, limited companies which registered in Hong Kong have to be equipped with:

• At least one (maximum 50) shareholder(s);
• At least one director (shareholder may simultaneously appointed as director);
• One company secretaries; (*)
• Office (may be hypothesized or actual).
If the company secretary is individual, then that person must be a Hong Kong resident; (*)If it is a corporation, then this corporation must be equipped with a registration office or operation location in Hong Kong.

Advantages of running business in the form of limited company

• Limited Liability - The company is an independent legal status. The shareholders have limited liability for the amount of shares issued. Thus, the personal property of the owner is not required to be part of the compensation if the company is not able to pay all the debts.
• Ever-lasting continuity - As the limited company has independent legal status, any changes of the shareholders will not affect the legal status of the company.
• Wide scope of financing - As the financial statements of the company have been verified by qualified accountants, this is easier for bankers to assess the financial status of the company in order to provide various financing products

Disadvantages of running business in form of limited company

• Tax rate is slightly higher - limited company needs to pay 16.5% of its profits as Profits Tax, higher than that of 15% of sole proprietor.
• Disclosure to the public - limited company needs to disclose information of its company shareholders and directors.
• Complicated registration procedures – a limited company must be registered with the Companies Registry before applying to the Business Registration Office, these procedures are quite complicated, and the most people need to appoint professionals to handle the registration procedures of the limited company.