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How to Set up a Private Limited Company in Hong Kong: An Essential Guide

Last updated: March 2024

Hong Kong has well established itself as one of the best places in the world to do business. Private Limited Companies (PLC) in Hong Kong provide directors and shareholders with a flexible business setup in this premier global business hub. A PLC in Hong Kong offers a flexible business structure, an easy set up and numerous other advantages. This guide will give you a comprehensive understanding of a private limited company, its advantages and disadvantages, as well as what is needed to set one up.

What is a Private Limited Company in Hong Kong?

A private limited company (commonly called as a PLC) in Hong Kong is a type of business entity that is privately held where the liability of its members is limited to the amount of capital they have invested.

It requires at least one shareholder and one director, with the shareholder(s) typically being individuals or other companies. It’s a popular choice for small to medium-sized businesses due to its separate legal identity and limited liability protection.

This kind of company can be called “Ltd.”, “Limited Company,” or “Private Company Limited by Shares.” They all mean the same thing – a Private Limited Company, which we’ll use in this article. “Limited by shares” means the owners have shares in the company. There can be many shareholders, or one person can own all of it. Shareholders get dividends based on how much of the company they own.

A private limited company is a separate legal entity from its owners, and the shareholders' personal assets are protected from the company's debts and liabilities beyond the amount of capital they have invested in the company.

What Does Limited Liability Mean?

In a private limited company in Hong Kong, limited liability means that the shareholders’ personal assets are protected, ie, owners are not personally & financially responsible for debts owed by the company. Their personal assets are separate from the company’s. Only the company’s assets can be taken to pay debts. Directors act for the company, not themselves, protecting shareholders’ savings.

If the company faces debts or legal issues, the shareholders are only liable for the amount they invested in the company, and their personal assets are not at risk. Only the company’s assets can be taken to cover these debts.

This protects shareholders from losing their savings or investments, unlike in a Sole Proprietorship. However, in fraud cases, personal assets may be used to pay debts. If a company isn’t registered, acting as a director makes you a “de facto” director, with similar responsibilities as registered directors.

Did you know that unlike many other countries, Hong Kong has no minimum capital requirement to start a private limited company!

What are the different types of Private Limited Company in Hong Kong?

There are a few variations of Private Limited Companies in Hong Kong, based primarily on the nature of liability of its members, the number of members, and the specific purposes for which they are formed. The main types are as follows:

Company Limited by Shares: This is the most common type of Private Limited Company in Hong Kong. In this setup, the liability of the shareholders is limited to the amount, if any, unpaid on the shares respectively held by them. It is characterized by restrictions on the right to transfer its shares, a limit of 50 shareholders, and a prohibition on public subscription to its shares or debentures.
Company Limited by Guarantee: Less common than the company limited by shares, this type of company is typically used for non-profit organizations. In this arrangement, members agree to contribute a predetermined sum to the company’s liabilities, which becomes relevant if the company is wound up.

Each type of Private Limited Company in Hong Kong serves different business needs and offers varying levels of protection, tax benefits, and compliance requirements.

The choice among them depends on the specific objectives, the desired level of liability protection, the funding mechanism, and the operational flexibility required by the business owners.

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Advantages & disadvantages of a Private Limited Company

What are the advantages of a Private Limited Company in Hong Kong?

Forming a private limited company in Hong Kong offers several advantages.

Easy set-up and fast incorporation: Incorporating a PLC in Hong Kong is simple, with minimal annual compliance requirements. Hong Kong’s tax rates for domestic income are globally low, and offshore income is usually not taxed.

No minimum startup capital needed: In Hong Kong, a private limited company can be set up without any minimum capital requirements, which is ideal for small businesses. Unlike some other countries, Hong Kong allows incorporation with as little as 1 HKD, making it accessible for startups and small enterprises globally.

Minimal Compliance Requirements: Hong Kong private limited companies (PLCs) have minimal annual compliance obligations:

Renewal of the Business Registration Certificate
Annual accounting requirements
Yearly audit of accounts
Submission of the Annual Return

Unlike other jurisdictions, where monthly reporting may be required, Hong Kong companies only need to fulfill these requirements once a year. Additionally, only one annual general meeting is mandatory, and it can be conducted remotely via telephone or other means, providing flexibility for businesses.

Private limited companies are the most popular business structure in Hong Kong.

Limited Liability Protection: Unlike sole proprietorships, where personal assets can be used for settling business debts, private limited companies are considered separate legal entities from their shareholders, meaning they have independent liabilities and debts that do not affect the personal finances of their owners. This shields shareholders’ personal assets from business debt risks as their responsibility only extends to the amount invested in shares.

Tax Benefits: Hong Kong is renowned for its favorable tax policies, with a corporate tax rate of 16.5%, one of the lowest in the world. The profits tax system follows two tiers, private limited companies are only subject to an 8.25% tax on assessable profits up to HK$2 million and above that amount, they are taxed at the standard rate of 16.5%.

Private limited companies enjoy benefits such as being solely taxed on income generated within Hong Kong based on their territorial taxation system. Moreover, Hong Kong Private Limited Companies do not have to worry about paying capital gains tax or sales taxes, VATs, or withholding taxes applied to dividends received by shareholders.

Ease of raising capital: The acquisition of funds for business expansion is a primary concern for entrepreneurs. Private limited companies in Hong Kong offer an effective means to achieve this through the sale of shares. The transferability of ownership in private limited companies can be easily facilitated by selling or issuing shares, making them attractive to potential investors and increasing opportunities for capital raising.

Easy transfer of ownership: In a Private Limited Company, ownership can be transferred fully or partially by selling all or some of its shares, or by issuing new shares to new investors. This easy legal process ensures that business operations carry on smoothly without any interruptions.

Better public perception: A Sole Proprietorship has risks, making it harder to get financial support as investors may hesitate. On the other hand, a Private Limited Company is seen as more trustworthy and is taken more seriously than a Sole Proprietorship or Partnership. With a PLC, getting bank loans is simpler compared to other business types.

Perpetual succession: Even in the event of a change in ownership, management, or membership, a private limited company continues to exist as a separate legal entity. This ensures that the company can persist indefinitely, even if shareholders come and go or if there are changes in the board of directors. This provides stability and continuity to the company’s operations, allowing it to endure beyond the lifetimes of its founders or initial stakeholders.

What are the disadvantages of a Private Limited Company in Hong Kong?

Despite the advantages, there are also potential drawbacks associated with setting up a private limited company in Hong Kong. These include high operating costs such as office rent and daily expenses, difficulty obtaining work permits for foreign employees or investors due to specific skill requirements, and challenges complying with strict banking regulations when opening corporate accounts.

In addition, as per the Companies Ordinance, all private limited companies need to maintain a significant controllers register and disclose company information promptly. Annual audits are compulsory for these companies. Smaller ones may have the option to prepare simplified accounts.

Looking to start a Hong Kong business? Speak to our company registration experts.

How to register a Private Limited Company in Hong Kong?

Incorporating a Private Limited company in Hong Kong is a straightforward process, particularly when you are working with a professional agency like Sleek. Several details are necessary, including personal information to meet compliance requirements. These prerequisites are clearly outlined in the Hong Kong Companies Ordinance, part of the local Corporations law.

For the incorporation of a Hong Kong Private Limited Company, the following steps are necessary:

Choosing a company name
Providing a local Hong Kong address (which may be shared with the company secretary)
Details of company directors
Information on shareholders and share capital
Outlining business activities
Describing subscribed share capital

Submitting Required Documents

Once the documents are ready, you need to submit them with the Companies Registry using Form NNC1 and a copy of the Articles of Association.

An application must be made with the Business Registration Office using either Form IRBR1 for local companies or Form IRBR2 for non-Hong Kong-based businesses.

What are the documents required to register a Private Limited Company in Hong Kong?

To register a private limited company in Hong Kong, you will typically need the following documents:

Memorandum and Articles of Association: This document outlines the company’s constitution and regulations governing its internal affairs.
Form NNC1 (Incorporation Form): This form contains information about the company’s name, registered address, directors, shareholders, and company secretary.
Identity Proof: Copies of passports for non-resident directors and shareholders, and copies of Hong Kong identity cards for resident directors and shareholders.
Address Proof: Proof of residential addresses for directors and shareholders, such as utility bills or bank statements.
Company Secretary: If appointing a company secretary, a written consent to act as secretary.
Registered Address Proof: Proof of the company’s registered address, such as a tenancy agreement or utility bill.
Share Capital Details: Information about the company’s share capital, including the number of shares and their value.
Designated Representative (DR) Appointment Form: If applicable, a form appointing a designated representative for the Significant Controllers Register (SCR) requirements.
Other Required Forms: Depending on specific circumstances, additional forms may be needed, such as Form IRBR 37 for business registration.

Ensure to verify the latest requirements from the Companies Registry or seek guidance from a professional service provider for accurate and up-to-date information.

Registering a private limited company grants you business name protection in Hong Kong. This ensures no other company can operate under the same name.

List of corporate roles required for Private Limited Company in Hong Kong

Here is a list of the key corporate roles typically needed for a private limited company in Hong Kong:

Director(s): Every private limited company in Hong Kong must have at least one director who is a natural person. Directors are responsible for managing the company’s affairs and making strategic decisions. While there is no requirement for directors to be residents of Hong Kong, having a local director can provide practical advantages.
Company Secretary: A company secretary is a statutory position in Hong Kong. The company secretary must be a resident individual or a body corporate with a place of business in Hong Kong. The company secretary is responsible for ensuring the company’s compliance with legal and regulatory requirements, maintaining company records, and communicating with shareholders.
Shareholder(s): Shareholders are the owners of the company. A private limited company in Hong Kong can have a minimum of one shareholder and a maximum of 50 shareholders. Shareholders can be individuals or corporations, and there is no residency requirement.
Auditor: While not involved in the day-to-day operations, an auditor must be appointed within three months of incorporation. The auditor is responsible for examining and reporting on the company’s accounts, ensuring they provide a true and fair view of the company’s financial situation. The auditor must be a member of the Hong Kong Institute of Certified Public Accountants (HKICPA) and hold a practicing certificate.
Registered Office: Companies incorporated in Hong Kong must have a registered office in the territory. This address is used for receiving government correspondence and legal documents. The registered office does not have to be the place of business but must be a physical address where notices and legal documents can be served.

These roles are essential for the legal operation and management of a private limited company in Hong Kong.

The allocation of responsibilities among these roles should be clearly defined in the company’s articles of association and in accordance with the Companies Ordinance and other relevant regulations.

Hong Kong allows 100% foreign ownership of private limited companies. This means you can be from anywhere in the world and set up your business in Hong Kong, with some exceptions for specific industries.

FAQs

Frequently asked questions

Are there any annual compliance requirements for a Private Limited Company in Hong Kong?

Yes, a Private Limited Company in Hong Kong must comply with annual requirements, including filing an annual return with the Companies Registry and preparing audited financial statements for tax filing purposes.

Can foreigners own a Private Limited Company in Hong Kong?

Yes, foreigners can fully own a Private Limited Company in Hong Kong. There are no restrictions on foreign ownership, and foreigners can be directors and shareholders of the company.

What is the minimum number of directors and shareholders required to form a Private Limited Company in Hong Kong?

A Private Limited Company in Hong Kong requires at least one director and one shareholder, who can be the same person. There is no requirement for the director or shareholder to be a Hong Kong resident.

What is the difference between a Private Limited Company and a Public Limited Company in Hong Kong?

The main difference lies in their ability to raise funds; a Private Limited Company cannot offer its shares to the general public, whereas a Public Limited Company can. Additionally, Private Limited Companies have restrictions on the transferability of shares and a limit on the number of shareholders.

What are the tax obligations for a Private Limited Company in Hong Kong?

A Private Limited Company in Hong Kong is subject to Profits Tax on its assessable profits at the prevailing corporate tax rate. However, Hong Kong adopts a territorial basis of taxation, meaning only profits sourced in Hong Kong are taxable.

Can a Private Limited Company in Hong Kong have foreign directors or shareholders?

Yes, a Private Limited Company in Hong Kong can have foreign directors and shareholders. No nationality or residency restrictions exist for directors and shareholders of Hong Kong companies.

Author

Liam Thomas

Country Head of Hong Kong SAR at Sleek

Liam brings extensive expertise in addressing the challenges encountered by entrepreneurs and small to medium-sized enterprises, particularly in the fintech and payments sectors. With a wealth of experience spanning the UK, Singapore, China, Australia, and Hong Kong SAR, Liam offers global insights and strategic guidance to drive business success.

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