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What is the difference between doing business using a limited company and doing business as a sole proprietor?
A sole proprietorship and a company are two distinct business structures with significant differences. Here are the key differences between the two:
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A sole proprietorship is not considered a separate legal entity from its owner. The business and the owner are viewed as one entity in the eyes of the law.
In a sole proprietorship, the owner has unlimited personal liability for the debts and obligations of the business. This means the owner's personal assets can be at risk to satisfy business debts.
In a sole proprietorship, the business is owned and controlled by a single individual. The owner has complete control over the decision-making and operations of the business.
A sole proprietorship is closely tied to the individual owner, and the business ceases to exist upon the owner's death or retirement. It can be challenging to transfer ownership of a sole proprietorship to another person.
In a sole proprietorship, the business income is taxed as part of the owner's personal income. The owner reports business profits and losses on their personal tax return.
Sole proprietors typically rely on personal savings or loans to finance their business activities.
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In contrast, a limited company is a separate legal entity distinct from its owners (shareholders). The company has its own rights, liabilities, and obligations.
For a company, the liability of shareholders is limited to their investment in the company. Personal assets of shareholders are generally protected, and their liability is limited to the amount unpaid on their shares.
In a company, ownership is divided into shares, which are held by one or more individuals or entities (shareholders). Control of the company is exercised through shareholders' voting rights, and day-to-day management is typically delegated to directors appointed by the shareholders.
In contrast, a limited company has perpetual existence, meaning it can continue to exist even if shareholders change or pass away. Ownership of a limited company can be transferred through the sale or transfer of shares.
In a limited company, the company is subject to corporate tax on its profits. Shareholders are then taxed on any dividends they receive from the company. This can result in potential tax advantages for a limited company, as corporate tax rates may be lower than personal income tax rates.
Companies have more options for raising capital and attracting investors. They can issue shares to raise funds and are generally more attractive to external investors, such as venture capitalists or angel investors.
What are the benefits of incorporating a Hong Kong company?
Incorporating a Hong Kong company offers several benefits. Firstly, Hong Kong has a simple and efficient company registration process, allowing for quick establishment. Additionally, Hong Kong has a favorable tax regime, with a low corporate tax rate and no capital gains tax or withholding tax on dividends. Furthermore, incorporating a Hong Kong company provides access to the international market, as Hong Kong is a global financial hub with strong connections to mainland China and other Asian markets. Lastly, Hong Kong companies enjoy a high level of corporate governance and transparency, which enhances their credibility and reputation.
What are the requirements for incorporating a Hong Kong company?
To incorporate a Hong Kong company, there are several requirements to be met. Firstly, there must be at least one director who is a natural person, and there is no requirement for the director to be a Hong Kong resident. Additionally, there must be at least one shareholder, who can also be a director. Furthermore, a registered office address in Hong Kong must be provided, where official documents can be sent. Moreover, a company secretary, who must be a Hong Kong resident or a Hong Kong registered company, is required. Lastly, the company must prepare and maintain accounting records, as well as submit annual returns and audited financial statements to the Companies Registry and the Inland Revenue Department.
How long does it take to incorporate a Hong Kong company?
The time required to incorporate a Hong Kong company can vary depending on various factors. Generally, it takes around 7 to 10 working days to complete the registration process if all the required documents are in order. However, delays may occur if there are any issues with the submitted documents or if additional information is required. It is advisable to seek professional assistance to ensure a smooth and timely incorporation process.
Can a foreigner incorporate a Hong Kong company?
Yes, non-Hong Kong persons can incorporate a Hong Kong company. There is no requirement for the director or shareholder to be a Hong Kong resident. However, it is important to note that at least one director must be a natural person, and a registered office address in Hong Kong must be provided. Astra specialises in company incorporation and can help you comply with all legal requirements.
What are the ongoing obligations for a Hong Kong company?
Once a Hong Kong company is incorporated, there are certain ongoing obligations that must be fulfilled. These include maintaining proper accounting records, submitting annual returns to the Companies Registry, and preparing audited financial statements. Additionally, the company must comply with tax obligations, such as filing tax returns and paying corporate taxes. It is important to stay updated with any changes in regulations and seek professional advice to ensure compliance with all legal requirements.
Why do business in Hong Kong?
Low tax – Hong Kong has a simple and efficient tax system, with a low corporate tax rate of 16.5%. Hong Kong’s favourable tax environment allows businesses to maximize their profits and reinvest in growth. Additionally, there is no capital gains tax, withholding tax on dividends, or sales tax.
Common law jurisdiction - Hong Kong has a robust legal system based on English common law, ensuring a transparent and fair business environment. This provides businesses with confidence and security in their operations.
Open and free market - Hong Kong has a well-developed financial system, making it easy for businesses to access capital and manage their finances efficiently. The city is home to numerous international banks, venture capital firms, and private equity funds, providing businesses with a wide range of financing options.
Trade ties with Mainland China - Hong Kong offers easy access to the Chinese market, which is one of the largest and fastest-growing economies in the world. With its proximity and strong trade ties, businesses can tap into the vast opportunities available in China.
Location and infrastructure - Hong Kong is known for its strategic location and excellent infrastructure. It serves as a gateway to Asia and offers world-class transportation, logistics, and telecommunications networks. This enables businesses to connect with suppliers, customers, and partners globally, facilitating international trade.
Why use a Hong Kong company?
Using a Hong Kong-incorporated company offers several benefits compared to sole proprietors and partnerships. Firstly, a Hong Kong-incorporated company provides limited liability, meaning that the personal assets of shareholders are protected in the event of business debts or legal issues. Additionally, a company structure allows for easier access to funding and investment opportunities, as it can issue shares and attract investors. Furthermore, a company structure provides greater flexibility for ownership transfer and succession planning, ensuring the longevity and stability of the business. Overall, incorporating a company in Hong Kong offers significant advantages over sole proprietorships and partnerships, making it an attractive choice for entrepreneurs and businesses.
What do I need to set up a Hong Kong company?
The requirements for setting up a Hong Kong company are as follows:
At least one shareholder. This can be an individual or a parent company. There is no restriction on the nationality or place of incorporation of any shareholder.
At least one director that is an individual (i.e. not a company). There is no restriction on the nationality of the individual. Any additional director can be an individual or a company.
A company secretary situated in Hong Kong.
A registered office address situated in Hong Kong. If you do not have one, Astra can provide this as a service.
A designated representative, who may be a shareholder, director or employee of the company who is an individual resident in Hong Kong. If you do not have one, Astra is licensed to act as designated representative as a service.
What is the role of a company secretary?
The role of a Hong Kong company secretary is to ensure a company’s compliance with legal and regulatory requirements and to maintain the company’s corporate records. They are responsible for preparing and filing statutory documents and assisting with board and shareholder resolutions. Additionally, they handle matters related to corporate governance, such as ensuring the company's articles of association are adhered to and assisting with the appointment and resignation of directors. The company secretary also plays a crucial role in maintaining the company's register of members and handling share-related matters, including issuing and transferring shares. Overall, the company secretary acts as a key officer of the company and helps ensure that the company operates in accordance with its legal and regulatory obligations.
What is the purpose of the requirement for a Hong Kong company to have a registered office address in Hong Kong?
The requirement for a Hong Kong company to have a registered office address in Hong Kong serves several purposes. Firstly, it ensures that the company has a physical presence in Hong Kong, which is important for conducting business and establishing credibility. Secondly, it allows government authorities and stakeholders to easily locate and communicate with the company. Additionally, the registered office address is used for official correspondence, such as receiving legal documents and notices. Overall, the requirement for a registered office address in Hong Kong is essential for the proper functioning and regulation of companies in the jurisdiction.
Can a company have more than one address?
Although a Hong Kong company needs to have a registered office address for the purposes of satisfying the legal requirement, there is no limit to it having additional correspondence and business addresses.
What is the role of a designated representative?
Every Hong Kong company is required to keep a significant controllers register, which is a private document that details the beneficial owners. The general public do not have access to this document, but the law provides that in certain circumstances, a law enforcement officer is able to access the significant controllers register on demand.
The law requires each Hong Kong company to designate a person to be the company’s representative to provide assistance to law enforcement officers relating to the company’s significant controllers register.
What are the basic recurring maintenance costs of having a Hong Kong company?
A Hong Kong company incurs the following costs on an annual basis:
Annual return filing fee, payable to the Hong Kong government.
Company secretarial fee.
Auditor’s fee.
Business licence fee and levy.