Doing business is not an easy thing to do. The owner needs to be focused on many things at once, and it doesn’t always give much in return. But for someone who is interested in exploring other jurisdictions or expanding their own business in a new territory, it is always an open question about where there are better benefits.
There is no one answer to that question for every case. Instead of seeking a universal place to become rich, it is better to sit down and think about what you are seeking. This process includes not only the business sphere but also questions about business management, capital investments, whether you are willing to have commercial relationships with foreign companies, etc.
By understanding your goals and preferences, you can narrow down your options and focus on the areas that align with your interests. This will help you make more informed decisions and increase your chances of success in the long run.
So it is always a good idea to think about what you want to get as a result, and this will help you understand where your business belongs.
But there are few jurisdictions that can be advised for many individual cases of creating businesses. One of them is Hong Kong.
Hong Kong is a special administrative region (SAR) of China. It means that SAR has its own legislation in many different spheres that can even contradict China’s legislation. Because of that, starting a business in Hong Kong is not the same as doing it in China.
Moreover, Hong Kong, during its status as a SAR, did a great job of introducing modern and business oriented legislation that makes Hong Kong one of the best jurisdictions for businessmen. As a result, many international corporations are investing in Hong Kong and/or having representations there. Some of the most famous corporations are Google, Starbucks, and Apple.
Hong Kong legislation allows foreigners to obtain 100% corporate rights in legal entities that are registered in Hong Kong. It means that there is no requirement to start business with a local partner, as there can be in other jurisdictions.
Company types in Hong Kong
Hong Kong, like most other jurisdictions, has different forms of establishing business, but the most common are the following:
- private limited company
- public limited company
- different forms of representation
A private limited company (shortly, Ltd.) is a company that was created by at least 1 founder and has at least 1 director. The company is restricted to only 50 owners and cannot go further without changing its form. There are no minimum capital requirements in legislation, but you must be aware that in some cases, minimum capital will be set by authorities or banks. Situations like this can happen when you want to start a business in a specific sphere (like insurance, banking, etc.) or when you are trying to get a bank account at a top-ranked bank. Ltd. can be limited by share capital, limited by guarantee, or both. This company is commonly used by small businesses due to its low requirements for establishment.
A public limited company is mostly used for big businesses because of its possibilities. The first difference between PLC and Ltd. is that PLC can publish its shares for public trading (listing), which means it can attract capital from outside the company. A possibility to increase the company’s capital can help expand business. But due to the high risks of fraud, there is an authority that looks over all PLC. Moreover, there are additional requirements for establishing a PLC, like the necessity of presenting a workable business plan, for example.
A partnership is a subject that includes in itself some possibilities from legal entity and from individual entrepreneur. A partnership can be created by a minimum of 2 partners who share the partnership’s liability. Note that both a legal entity and an individual can be partners. The type of partnership is determined by its partners, which leads to liability differentiation. A general partnership is one where all partners have individual liability in case the partnership itself can’t pay its debts. When this situation arises, all the partners of the partnership must pay the partnership’s debts with their own money and property. But in the case of a general partnership, all of the partners can manage the partnership, and all of them share the profit. Another type of partnership is limited. There are 2 types of partners here: general and limited. A general partner is the same as a general partner: he can manage business, share profit, and have personal liability. Limited partners don’t have unlimited liability and can lose only the capital that was invested in the partnership, but limited partners can’t manage partnerships at all.
One of the biggest benefits of the partnership is that it doesn’t count as a legal entity, which means that when the partnership gains some income, it won’t be taxed in any way and will be shared between partners right away. After a partner gets some profit from a partnership, this profit will be taxed as his individual income (individual income tax). For comparison, the standard corporate tax rate is 16,5% (8,25% for the first 2 million HKD), and the standard individual tax rate is 15%.
Lastly, a foreign company can establish a presence in Hong Kong to meet its needs. Depending on the presentation’s duties, foreigners can choose between 3 forms: branch, representation, and subsidiary company.
A branch is an extension of the mother company that can do the same business as the mother company. In the case of some debts, the mother company will be forced to pay those debts.
A representation is like a branch, except that it can’t do any commercial business. A representation can be involved only in some marketing actions or market research.
A subsidiary company is a business (Ltd. or PLC) that is entirely or largely owned by another business. It’s like a branch, but if the subsidiary company can’t pay its debts, the mother company’s liability is limited by the share capital that was invested in the subsidiary.
The most common process of establishing business in Hong Kong
Despite the differences between all the mentioned forms of business, they have some common steps in registration:
- Name reservation.
- Document preparation for an application.
- Submitting an application.
- Post-registration duties (opening a bank account, registering with tax and social security authorities, etc.)
While this procedure looks simple on paper, people often have some problems at steps 2 and 3, which require much paperwork and communication with authorities. Bad documents can lead to the denial of the application and the necessity of starting from scratch. That’s why it is important to involve some specialists who can support you throughout the whole process.
Because of that, there are some companies, that specialize in supporting the process of creating businesses. Our company YB Case is a direct registration agent. We offer specialists with great experience in creating companies in Hong Kong, fluent procedures, and minimal effort from our clients in achieving their goals. That’s why our services are very convenient in the case of creating companies of any type.
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