Limited Liability Company in Hong Kong: An Introduction

A limited liability company is a business structure that protects its owners from liability. The creation of an LLC in Hong Kong creates a new legal entity that’s separate from its owners.

However, it’s worth noting that this protection can be compromised by director wrongdoing. Owners may also be asked to provide a personal guarantee, for example, if they take out a business loan, which creates personal liability.

When you’re launching a startup in Hong Kong, it’s important to understand the different types of proprietorship, so you can pick the type of corporation that’s right for you. LLCs have some of the characteristics of limited companies and partnerships. However, there are also some pros and cons.

The key advantages of a limited liability company formation include limiting the personal liability owners face, positive public perception, easy transfer of proprietorship and tax advantages.

Disadvantages for Hong Kong-based entrepreneurs include the ability to go public (a limited company is the best structure if you hope to list on the stock market in the future), there is ongoing compliance and there may be complex winding-up procedures.

The choice of legal structure affects the ownership structure, taxation and your liability — it’s important you understand the implications of choosing an LLC.

Once you have decided to form an LLP, you need to think about your company name, shareholder capital (who owns the business), define how it’s run through your Articles of Association and submit your paperwork.

The next section of this guide walks you through these steps.

1 Reserve a business name

Coming up with a name is one of the most exciting parts about starting up. There’s a few things you need to keep in mind in Hong Kong.

You can’t pick a name that’s already in Hong Kong’s Registrar of Companies. Also, avoid using a name that might infringe on the intellectual property rights of another corporation or organisation, which could attract criminal or civil sanctions.

You can do a name search using the Cyber Search Centre or Company Search Mobile Service. Do an exact search and use traditional Chinese characters for the Chinese name. Next, you should look at the Trademark Register.

2 Decide the shareholders and the share capital

Shareholders own part of the business. The amount that they own depends on the percentage of the total shares they have. In Hong Kong, you can have between one and 50 shareholders.These are normally made up of co-founders and investors.

The value of each share is normally decided by the volume of shares and the amount you invest. For example, you might decide to invest HK$10,000 and form with 100 shares, which means each share is worth HK$100. If someone in the partnership has 50 shares, they own half the business.

3 Obtain the Articles of Association

Articles of Association set out how Hong Kong-based LLCs are run. You need to include some basic information, including the name, objective and shareholdings.

Beyond those details, it’s helpful to include features about how you will approach certain situations, such as a disagreement between directors. It’s much easier to agree to these features in advance than to develop policies when an issue arises — you want this partnership to get started on a solid footing. Seek professional help if you are unsure what to include in your Articles.

You can opt to use Model Articles provided by Hong Kong’s Companies Registry. This is a template that sets out the basic information needed. You can either adopt all of the provisions or modify them.

4 Register your business

Company formation is completed through Hong Kong’s Companies Registry. Once you have chosen your name and collated the information you need, you can register online through the e-Registry or by sending in an application in the post.

You will receive your Certificate of Incorporation and Business Registration Certificate when the formation is complete. After this, the final step is to get any additional licences you need because of the type of business you’re running.

Registering a company is a critical first step in your journey to launching a business in Hong Kong. The choice of legal structure affects the ownership structure, taxation and your liability — it’s important you understand the implications of choosing an LLC for your formation.

In Hong Kong, the main types are Sole Proprietorships, Partnerships and Limited Companies. It’s important to find a balance between ease of formation and operation and functionality. A Sole Proprietorship is simple to set up but does not allow multiple shareholders. Limited Companies are more complex, but make it easy to sell shares.

The following five sections dig into the different aspects in more detail, which will help you decide if this is the right structure for you.

Flexibility offered by LLCs

LLCs can easily issue or assign shares to new members. That means you will be able to raise money through investment.

Succession of proprietorship is easily possible in an LLC as new shareholders can be appointed. This is different to Sole Proprietorship, which ceases to exist when the sole proprietor passes away or decides to stop trading.

Separate legal identity

Launching an LLC creates a new legal entity. This means the corporation can take out financing, such as bank loans, and be liable for damages.

The shareholders are protected by this. For example, if a bank pursues an unpaid debt, they can only go after the assets owned by the LLC, which may be wound up. In this scenario, the owners’ personal assets are safe.

It’s worth noting that corporation owners may be asked to give personal guarantees. There are also some exceptions to the liability where directors have broken rules.