Hong Kong: Hong Kong - Establishing a Business - C. Business Vehicles

Last Updated: 20 November 1995
Most Read Contributor in Hong Kong, October 2018
1. Limited Company

1.1 Introduction

A limited liability company is the most common form of business entity in Hong Kong. The vast majority are private companies. A private company is a company which, by the terms of its constitution, (i) restricts the right to transfer its shares, (ii) limits the number of its shareholders to 50 and (iii) prohibits any invitation to the public to subscribe for its shares. All other companies limited by shares are public companies. It is a simple matter to convert a private company to a public company by altering its constitution so that the conditions for private company status are no longer met. This will occur when a company offers its shares to the public.

1.2 Incorporation

The first step in the incorporation procedure is to prepare the company's constitution, comprising its Memorandum of Association (which states its business objects) and its Articles of Association (which contain its internal regulations constituting a contract between the shareholders and the company) and to choose a company name. A company name cannot be reserved in advance but the current register at the Companies Registry can be checked to see whether or not a name is already being used. Once the constitutional documents have been prepared, they are submitted to the Companies Registry. After a week to ten days, the Registrar will issue a Certificate of Incorporation and the company will have been incorporated. Its legal existence will commence from the date of the certificate of incorporation. Johnson Stokes & Master keeps a stock of shelf companies available for immediate use by clients.

1.3 Share Capital

A company's share capital can be denominated in any currency but any subsequent change in that currency requires the consent of the Supreme Court of Hong Kong and, accordingly, involves somewhat complex legal proceedings. The currency of a company's share capital is distinct from and need not be the same as the currency in which its books of account are maintained. Its accounting currency is a matter for its directors to determine. There is no prescribed minimum or maximum share capital but authorised share capital attracts a Companies Registry fee at the rate of HK$6 per HK$1,000 capital (often referred to as capital duty) but there is no such fee on the issue of shares. Because of the expense of capital duty, working capital is often provided by way of shareholders' loans rather than paid-up share capital. Recently introduced legislation allows a Hong Kong company to buy back its own shares in some situations.

1.4 Shareholders

A company must have at least two registered shareholders whose names, addresses and shareholdings are filed on public record at the Companies Registry. However, a single person or corporation can, in effect, own a company by virtue of the other registered shareholder acting only as nominee. Shareholders can be natural persons or corporations of any nationality, domicile and residence. If a nominee shareholder is required, it ensures flexibility and easier continuity to use a corporation for that purpose.

1.5 Shares

Shares can be issued as ordinary shares or as preference or deferred shares with special rights attached to them as prescribed in the Articles of Association or as shares which are redeemable in accordance with the companies legislation. The shares of a Hong Kong company must have a stated par value.

A transfer of the beneficial ownership of shares attracts stamp duty at the rate of 0.3% of whichever is the higher of the value of the shares or the purchase price but inter-group transfers are exempt in some circumstances.

Dividends on shares can be paid to shareholders out of the company's available profits. There is no taxation on dividends and no exchange control restrictions in Hong Kong on the payment of dividends.

1.6 Directors

A company must have at least two directors but there is no legal maximum. Directors can be natural persons or corporations of any nationality, domicile and residence. The name, nationality, any former nationality, residential address and business title of each director must be filed on public record at the Companies Registry. There are no restrictions as to the place at which board meetings can be held. Modern Articles of Association will usually provide for written resolutions of directors as an alternative to holding board meetings and also for board meetings to be held by telephone link.

1.7 Company Secretary and Registered Office

A company must have a company secretary. The secretary must be either another Hong Kong company or an individual ordinarily resident in Hong Kong. The company secretary's function is to prepare the documents which have to be filed on public record and to maintain the company's statutory books comprising (i) a register of directors, shareholders and other corporate details, (ii) a minute book of minutes of directors' and shareholders' meetings and (iii) the share certificate book.

A company must have a registered office address in Hong Kong which serves as the company's legal address for the service of notices and proceedings. This can be the same as or separate from its business address.

A Business Registration Certificate is required by each Hong Kong company for its principal office in Hong Kong (the annual fee is presently HK$2,250) and also for any other business address in Hong Kong (the annual fee is presently HK$316). The Business Registration office is a division of the Inland Revenue Department and the issue of these certificates is a formality.

1.8 Accounts

A Hong Kong company must keep books of account which give a true and fair view of the state of its affairs and explain its transactions. Its accounts must be audited once every year and submitted to the Hong Kong Inland Revenue Department. The accounts of a private company are not published or filed on any public record in Hong Kong. The accounts of a public company must be filed at the Companies Registry.

1.9 Annual Filing Requirements

Apart from the regular filing requirements so as to update the particulars of a company on public record at the Companies Registry, a company is required to file an Annual Return which will show updated particulars as to the company's authorised and issued share capital, shareholders, directors and registered encumbrances.

1.10 After Incorporation

Johnson Stokes & Master can provide services as company secretary and registered office. There are service companies in Hong Kong which can provide nominee directors.

2. Branch Office

2.1 Introduction

It is permitted for a foreign corporation to establish a place of business in Hong Kong and this is customarily referred to as a Hong Kong branch. A foreign corporation which establishes a Hong Kong branch becomes subject, generally, to the same legal and tax consequences as a company which is incorporated in Hong Kong. As a matter of Hong Kong law, there is no distinction between the foreign corporation itself and its branch and the branch is only an address at which the corporation itself carries on business.

2.2 Formalities

In order for a foreign corporation to establish a Hong Kong branch, it will be necessary for it to be registered at the Hong Kong Companies Registry as an overseas company. This must be done within one month of the establishment of its place of business in Hong Kong although it is often possible to attend to this before the place of business is established. Registration is effected by submitting to the Companies Registry copies of the constitutional documents of the foreign corporation, a list of its directors and secretary, the particulars of a representative who is resident in Hong Kong and certain other prescribed particulars. Registration is usually effected about three weeks after the required documents and information are filed at the Companies Registry.

A foreign corporation will be required to file a copy of its annual accounts on public record at the Companies Registry if it is required, under the laws of the place where it is incorporated, to publish its accounts or to make them available for inspection on public record. In the case of a foreign corporation which has the same legal characteristics as a Hong Kong private company, this public filing requirement can usually be avoided.

A foreign corporation with a Hong Kong branch must also obtain a Business Registration Certificate in respect of its office address in Hong Kong and the fee is presently HK$2,250.

3. Sole Proprietorship/General Partnership

3.1 Sole Proprietorship

The only procedural step in establishing a sole proprietorship is to obtain a Business Registration Certificate.

A sole proprietorship is not a separate legal entity so that all its debts and liabilities are the personal responsibility of the sole proprietor.

3.2 Partnerships

As is the case with a sole proprietorship, the only procedural step in establishing a partnership is to obtain a Business Registration Certificate. With the exception of some professional partnerships, the maximum number of partners in a partnership is 20.

Partnerships are usually governed by a partnership agreement. There is also a Partnership Ordinance which codifies the law relating to partnerships. In the absence of an agreement, the Partnership Ordinance, which contains provisions regulating the rights and obligations of partners, is deemed to apply.

A partnership is not a separate legal entity nor does it have continual existence. The partners are personally liable for all of its debts and all of its property rights are vested in all of the partners.

4. Limited Partnership

4.1 Introduction

A limited partnership must consist of at least one or more general partners who are responsible for the management of, and are liable for all the debts and obligations of, the partnership and one or more limited partners who are liable for the debts or obligations of the partnership only up to the amount that they contribute to the capital of the partnership.

4.2 Formalities

A limited partnership must be registered with the Registrar of Companies, otherwise it will be deemed to be a general partnership. A limited partnership also requires a Business Registration Certificate in respect of each place at which it conducts business in Hong Kong.

4.3 Restrictions on Limited Partner

In order for a limited partner to have the benefit of limited liability, the limited partner must not take part in the management or control of the business of the limited partnership and must have no power to bind the limited partnership as its agent.

5. Representative Office

5.1 Introduction

Hong Kong law recognises the status of a foreign corporation whose activities in Hong Kong do not require it to be registered as a Hong Kong branch. In such a case, the appropriate status is as the local representative office of the foreign corporation.

A representative office must not transact in Hong Kong any business which creates legal obligations. However, there are some well-established exceptions, for example entering into the usual arrangements with utility companies, with landlords in respect of the lease of its office premises and with its employees. Since a representative office cannot conduct any business in Hong Kong creating legal obligations, its activities should be limited to acting in a liaison capacity between Hong Kong and the corporation's offices elsewhere and introducing Hong Kong customers to those offices.

5.2 Formalities

A foreign corporation which establishes a representative office in Hong Kong must obtain a Business Registration Certificate.

The Inland Revenue Department will usually accept a letter confirming that the status of the foreign corporation in Hong Kong is as a representative office and, on that basis, the Department will exempt the corporation from the necessity to submit tax returns. Since the corporation will not conduct any business in Hong Kong, it will not generate any profits within the scope of Hong Kong taxation.

NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor"

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions