Almost small to medium-sized companies in Hong Kong are set up as private limited companies by shares and commonly referred to as private limited companies. It often chose over other forms of business entities like sole proprietorship and partnership owing to its many benefits. A private limited company by shares is a common type of company for conducting trade and business.
A private limited company by shares has a share capital which divided into many shares of specific value each. Shareholders hold the shares are entitled to a share in profits of the company and receive a dividend corresponding to the respective percentage of shareholding in the company. In case of any loss, the shareholders will lose their investment in the shares of the company.
Incorporating a company in Hong Kong is done under the companies ordinance, and the standard type is a private company limited by shares. Formalities for company incorporation kept to a minimum in Hong Kong, and the incorporating process can be completed in one working day as long as all required documentation is in place. For more information about setting up a private limited company, see Hong Kong Company Formation guide.
Key Requirements to Form a Private Limited Company
A company should incorporate with a name in English, in Chinese or both languages. The company name has to end with the word "Limited".
Minimum issued or paid-up capital is one in any currency. The concept of nominal or par value and authorised capital has abolished. Shares can freely transfer, but bearer shares are not permitted.
Minimum one director of any nationality has to be there—no limit for the additional number of foreign or local directors.
Minimum one to Maximum Fifty shareholders (individual or corporation) is required. Director and Shareholder can be the same,100% local or foreign shareholding is allowed.
It is mandatory to have a resident company secretary (individual or corporation).
A company must have a registered physical office in Hong Kong.
Accounts must be audited annually by CPA (Certified Public Accountants) in Hong Kong. The audited accounts with the tax return must be filed annually with the Inland Revenue Department. Annual Return must register with the Companies Registry.
Significant Controllers Register
The Companies Ordinance has amended to require a company incorporated in Hong Kong to identify persons and legal entities who have considerable control over the company. Hong Kong companies required to designate at least one representative to assist law enforcement officers to the SCR.
Accounting Reference Date
In Hong Kong, companies have the freedom to choose their financial year-end date, though they would usually align it with the government's fiscal year that runs from 1 April to 31 March.
Advantages of Forming a Private Limited Company
Tax Benefits and Incentives
There are several tax benefits and incentives that private limited companies enjoy in Hong Kong. The corporate tax set at 16.5% of assessable profits for corporations. There is no withholding tax on dividends, no capital gains tax, and interest and no VAT or sales tax in Hong Kong. For more details, refer to the Hong Kong Corporate Tax guide.
Operating a private limited company can help instil assurance in your business. More prominent scale companies prefer working with private limited companies in comparison to sole traders or partnerships.
The liability of the shareholders defined the amount of their respective investment.
Change of membership does not affect the company continued existence. Shares can quickly transfer, and changes in shareholders have no bearing on the business operations of the company. Which means the company has perpetual succession notwithstanding the death, resignation or insolvency of shareholders or directors.
Distinct Legal Entity
A private limited company may enter contracts, go into debt, acquire assets, make legal agreements, etc. all in the name of the company.
Ease of Raising Capital
Business expansion facilitated by the ease of raising finances by issuing more shares to existing shareholders or bringing in new shareholders. It is easier for private limited companies to secure bank loans when compared to other business entity types. For more details, refer Why Hong Kong is the ideal location for Business Incorporation.
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