The Four Myths of Starting a Business in Hong Kong
Hong Kong, as one of the international financial centers, attracts countless entrepreneurs and business owners pursuing their commercial dreams. However, before embarking on this entrepreneurial journey, it is crucial to understand and dispel the myths about
starting a business in Hong Kong.
Myth 1: Liability
There are primarily two types of companies in Hong Kong: limited companies and unlimited companies.
A limited company operates with “limited liability,” meaning it runs as a separate legal entity. The liability of shareholders and directors is limited to their subscribed capital amount. This implies that even if the company faces financial difficulties or bankruptcy, the personal assets of shareholders are generally not at risk. However, this does not mean all liabilities can be avoided. Fraud and illegal activities may still hold shareholders personally liable.
On the other hand, an unlimited company’s owners or partners have unlimited joint and several liabilities for the company’s debts. In other words, any debt the company cannot pay will be directly pursued against personal assets. Therefore, before starting a business, it is essential to consider business risks and personal financial capacity to select the appropriate company model.
Myth 2: Taxation
A limited company must prepare financial statements annually according to the Hong Kong Companies Ordinance, have them audited by a practicing accountant, and then submit them to the Inland Revenue Department for profit and loss assessment.
In contrast, an unlimited company does not need an audit process but must prepare accounting records and declare tax by filling out a tax return.
However, it is important to note that in Hong Kong, whether it is a limited or unlimited company, business operators are required to keep relevant company records (including all accounting vouchers) for at least seven years.
Myth 3: Related Laws
In Hong Kong, both limited and unlimited companies must strictly comply with relevant laws and regulations. For instance, a limited company must follow the Companies Ordinance (Chapter 622 of the Laws of Hong Kong). Additionally, the compliance requirements for a limited company are more stringent than for an unlimited company, including the need to appoint a professional company secretary. The company secretary ensures compliance with the Companies Ordinance, including timely disclosure and reporting of specified company information and changes to the Registrar of Companies, making it accessible for public inspection.
Myth 4: Company Deregistration
In Hong Kong, whether it is a limited or unlimited company, if the decision is made to cease operations, the deregistration process must be handled according to relevant laws. This includes completing tax clearance, paying all outstanding government fees, and submitting written notifications and necessary documents to the Business Registration Office and the Companies Registry. Additionally, a limited company must obtain a “Notice of No Objection” from the Inland Revenue Department before applying for deregistration.
In summary, starting a business in Hong Kong requires entrepreneurs to have comprehensive legal awareness, tax knowledge, and prudent decision-making abilities. By dispelling the above myths and fully understanding the relevant requirements, entrepreneurs can better plan their entrepreneurial journey and achieve their business dreams.
