The difference between a limited company and an unlimited company
As one of the three major international financial centers, it is not difficult for entrepreneurs to
set up a company in Hong Kong, but there are many details that need to be considered. Choosing the right company type is one of them, because it is directly related to future legal liabilities. , tax treatment and business expansion flexibility, etc. This article will delve into the differences between a “limited company” and an “unlimited company” to help entrepreneurs make more informed decisions.
What is a limited company?
A limited company, as its name implies, means that the liability of its shareholders is “limited.” If a company encounters debt problems during its operations, shareholders’ personal property is usually not affected unless they sign specific guarantee documents. A limited company is legally considered an independent legal entity and can enter into contracts, file lawsuits, own assets and make loans in its own name.
In Hong Kong, limited companies are mainly divided into joint stock companies and guarantee companies, among which joint stock companies are the most common form of commercial activities.
What is an unlimited company?
Compared with a limited company, the establishment procedure of an unlimited company is simpler. You only need to fill in the business registration form, submit it to the Business Registration Office together with a copy of the proprietor/partner’s ID card and pay the business registration certificate fee. It can be done on the same day. Receive a business registration certificate.
It is easy to maintain in the company. Unlimited companies do not have strict financial statement review requirements. They only need to keep accounting accounts and documents and file tax returns on time. However, unlike a limited company, the shareholders or partners of an unlimited company have unlimited liability, which means that if the company is unable to pay its debts, their personal property may also be used to pay off the debts.
What is the difference between a limited company and an unlimited company?
1. Legal status: A limited company has an independent legal person status and can bear legal responsibilities independently; an unlimited company does not have this status, and shareholders or partners need to bear corporate responsibilities in their personal names.
2. Debt liability: The liability of shareholders of a limited company is limited to the amount of their capital contribution; shareholders or partners of an unlimited company have unlimited liability.
3. Accounting and tax filing: A limited company needs to submit an annual audit report and be audited by an accountant; an unlimited company is relatively simple and only needs to file tax returns on time.
4. Number of shareholders: The number of shareholders of a limited company is flexible, usually 1-50; unlimited companies can be divided into sole proprietorship (1 person) and partnership (2-10 people).
5. Application qualifications: Limited companies have no restrictions on the nationality of shareholders, but certain conditions must be met (for example, non-Hong Kong residents need to appoint Hong Kong residents as company secretaries); unlimited companies are limited to Hong Kong residents or appoint Hong Kong residents as agents.
How to choose between a limited company and an unlimited company?
A limited company is suitable for entrepreneurs with large capital flows, investment plans and who want to protect their personal property. Although more expensive to set up and maintain, it provides better legal protection and greater business flexibility.
Unlimited companies are suitable for small-scale, low-risk entrepreneurs, especially those who want to simplify financial and tax procedures and reduce operating costs. However, it should be noted that unlimited liability may bring greater personal financial risks.
When opening a company in Hong Kong, whether to choose a limited company or an unlimited company depends on your own business needs, risk tolerance and long-term planning. Generally speaking, setting up a limited company is a common and safer approach, but small-scale business operators can also set up an unlimited company to save operating costs. The
Hong Kong Business Center can assist and establish a suitable company type based on the business needs of entrepreneurs, and solve the startup difficulties encountered by novice entrepreneurs.
