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How To Set Up a Limited Liability Company in Hong Kong

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How To Set Up a Limited Liability Company in Hong Kong

Hong Kong is one of the easiest places to establish a business and one of the most popular types of company to set up is a Limited Liability Company (LLC) thanks to a number of benefits.

But what is an LLC and how can you set one up? Find out in this helpful guide to limited liability company formation, which covers the most commonly asked questions and other helpful information.

What Is an LLC?

What is a Limited Liability Company?

Private limited companies are the most common type of business registered in Hong Kong. Included within this is the LLC or limited liability company — the most popular corporation type in HK.

An LLC has a legal identity that’s separate from its members. Shareholders are only liable for the value of their shares and are not personally liable for the firm’s wider debts, including if there is a bankruptcy or a costly lawsuit. There are exceptions to this, for example, if directors have provided a personal guarantee or do not carry out their responsibilities properly.

This structure is suitable for small and medium-sized companies as well as larger organisations, offering several advantages including a more convenient transfer of ownership and capital, and attractive taxation.

How To Form an LLC

When it comes to the formation of a limited liability company, the process varies depending on where you are incorporating. However, there are some key steps you’ll need to take when forming an LLC, which we’ve covered below.

  1. Choose a Name for Your LLC

    The first thing to do is to pick a name for your business. Your name needs to be unique in your region, so make sure you check with the Companies Registry to ensure no one else has the same name.

    Your company name should also end with LLC to identify its structure. Once you’ve chosen your corporation name and registered it, no one else can use it.

  2. Pick a Registered Agent

    This is a nominated person responsible for receiving business communications such as bills or lawsuits. This could be one of your members or a third party not already associated with the LLC.

    If you would prefer to hire someone externally to be your registered agent, you can find a list of private registered agents online.

  3. Prepare and Submit Essential Documents

    After deciding on your name and registered agent, you need to file your articles of association and complete an incorporation form. You’ll also need to submit a notice to the Business Registration along with English translations, where necessary. You should be able to find the relevant forms online.

  4. Create Your LLC Operating Agreement

    This document outlines the terms of your corporation’s ownership, structure and duties of the members. An operating agreement defines a clear approach as to how profits and losses are managed, as well as the rights of each member.

    It also establishes how the organisation is run, including the decision-making process and whether members must vote and gain a majority.

  5. Meet Local and State Business Requirements

    There are additional requirements including:

    • Having at least one shareholder and one director, local or foreign, over the age of 18 (it can be the same person)
    • Having a registered address and a company secretary
    • Appointing a Designated Representative, who provides assistance to the Significant Controllers Register
    • No minimum capital required, but common practice is around HKD $10,000
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Benefits of Forming a Hong Kong LLC

There are a number of advantages to forming an LLC. Some of the main benefits, many of which make forming one a popular option, include the protection of your personal assets, the availability of tax benefits, and flexibility in allocation.

Limited Liability

Limited Liability

One of the main advantages of an LLC is that from which it gets its name. Limited liability protects owners against debt and liability, in a way that a sole proprietorship or partnership does not.

In the case of an LLC, creditors cannot claim the owner’s assets when looking to repay debt. Instead, they can only claim the money owed from the business and only the firm’s assets can be liquidated to repay the debt. In this way, personal assets are protected and the owner cannot be held personally responsible.

For example, if you lost business to a competitor and were no longer able to pay your rent or bills, you would owe creditors a sum of money. However, while plaintiffs would have the right to claim money from the organisation, they couldn’t go after the owner’s personal assets, such as a house.

In essence, the amount of money for which you would be liable if your firm was bankrupt or sued is restricted by the corporation structure, acting as a form of safety net.

Full Foreign Ownership Permitted

Full Foreign Ownership Permitted

With the exception of a few specific sectors such as broadcasting, an HK-based corporation with limited liability status can have 100% foreign ownership. There is also no requirement for shareholders who are residents there.

Hong Kong encourages foreigners to set up businesses because of their contribution to the country’s overall incremental growth. As such, foreigners can be directors or shareholders of an HK-based business with no need to have a local resident do so instead.

Owners also don’t need to be physically present in order to incorporate, which makes it easier to set up your firm while overseas. However, bear in mind that the owner must be present to open a bank account.

Finally, you do not need to relocate to HK in order to run your company operations and can run your firm from abroad. You can find out more about this in our guide on how to open an offshore company or this article on how to set up a business in Singapore from Hong Kong.

Taxation and Benefits

Taxation and Benefits

Something that appeals to potential owners about incorporation in HK is the light taxation regime. In the 2018/19 financial year, corporation tax rates were 8.25% on the first HKD $2 million, and 16.5% on any remaining taxable profits, which is very low compared to other countries.

There are other taxes to pay including social security for both the employer and the employee, as well as stamp duty and real property tax. However, there is no payroll tax or capital duty payable in HK. In addition, the government doesn’t charge tax on sales, services or dividends.

Limited liability companies also benefit from tax deductions — another reason that makes incorporating here so appealing. In general, HK has relatively hassle-free tax procedures and clear-cut rules and regulations.

One of the main reasons people choose to incorporate in the Special Administrative Region is the low corporate income tax, no VAT and no sales tax. Finally, only profits derived from HK are taxable for LLCs.

Flexibility of Share Allocation

Flexibility of Share Allocation

When it comes to investing and profit sharing, a limited liability company structure provides a lot of flexibility. Within this structure, members can invest in a different proportion than they own. For example, if someone owned 30% of the company, they do not need to contribute the same amount of initial investment.

This means that an outside investor can put money into the organisation without having any ownership. It also allows companies to allocate or distribute profits in different proportions than ownership. For example, a member may own the same amount in shares as another, but has contributed more hours, so they might take a bigger portion of the profits to reflect this.

The operating agreement mentioned earlier is key to making this work, as it states the percentages each member will receive, regardless of their initial investment or ownership proportion. This level of flexibility is appealing for many because it allows for a more true monetary representation of how much each member has contributed.

Additional Information About an LLC in Hong Kong

With so many benefits, it’s not surprising that so many people want to open an LLC in Hong Kong. If you want to set up a company in HK, you can speak to one of our advisers about company registration.

But what other requirements are LLCs subject to, and what else do you need to consider?

Annual Reporting and Filing

In HK, limited liability companies must observe annual reporting and filing requirements.

Any private limited company in HK must file an Annual Return signed by a director, manager, secretary or another representative with the Companies Registry. They must also file an Annual Tax Return with the Inland Revenue Department, along with a copy of their audited accounts.

Other requirements include:

  • Maintaining records and documents at the registered address
  • Renewing business registration certificate
  • Holding an Annual General Meeting (AGM)
  • Obtaining, maintaining and renewing the business licences as required

Appointment of an Auditor

The accounts of an LLC in HK must be audited on an annual basis, and organisations must maintain an appointed auditor at all times.

The only exception to this rule is if there have been no relevant transactions for that financial year and thus it’s deemed dormant under the Companies Ordinance. Note that any transaction relating to the firm will mean it ceases to be dormant.

Communicate Changes in Company Details

LLCs must report any changes in their details to the Companies Registry, including:

  • Change of registered office address (must be communicated within 15 days of the change)
  • Change of secretary or director or change of particulars pertaining to these positions (notified within 15 days)
  • Change of organisation name requires the filing of a statutory form (NNC2) (within 15 days of the special resolution passing)
  • Any passing of a special resolution (within 15 days)
  • Relocation of the firm’s statutory books from the registered office (within 15 days of the change)
  • Any issuing or allotment of new shares (should be reported within one month)
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  • Who Can Form an LLC?

    As a general rule, there are no residency requirements or legal restrictions regarding who can start or incorporate an LLC. Any person, whether local or foreign, over the age of 18 can form a company in HK. You can own 100%, even as a foreigner, and can also be the sole director and shareholder. However, you can also have several owners, directors and shareholders.

  • What are the Main Benefits of a Limited Liability Company?

    Some of the benefits include the fact that full foreign ownership is permitted, the flexibility of the share allocation, and the attractive taxation system in HK.

    The other main advantage is the reduced liability offered since LLC finances are treated separately from personal assets, meaning that there is a level of protection for the owner if the firm falls victim to bankruptcy.

  • What Forms Are Required to Start an LLC?

    If you wish to form a limited liability company in HK, you’ll need a number of documents. The following should be prepared and submitted to the Companies Registry in Hong Kong:

    • Articles of Association
    • Completed incorporation form
    • Notice for the Business
    • Registration Office
    • Share capital details and information about shareholders
    • English translations, where applicable
  • How is an LLC Taxed?

    LLCs are taxed on a territorial basis and corporate income tax is paid on the business profits. Companies are taxed based on residency, meaning they are incorporated or managed in Hong Kong and are also only taxed on their HK-sourced income.

    HK has a low tax regime and the government doesn’t charge VAT, payroll, capital duty, sales, services or dividends tax. However, there are taxes payable on social security, stamp duty and real property.

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