When starting a new business, it is better to open a Hong Kong LLC or a sole proprietorship? This is an important question for first-time business owners and those who are just considering starting their own business.
While both business forms have their advantages and disadvantages, it is important to weight in all of the factors and make an educated choice. Our Hong Kong company formation agents highlight the main characteristics of both of these business forms.
The sole proprietorship in Hong Kong
The sole proprietorship can be a suitable business type for those entrepreneurs who want to start their own business with low costs. An important consideration is that the sole trader is not a separate legal entity from the founder and thus the investor is liable with his/her personal assets.
Some of the advantages of the sole proprietorship include:
– lower incorporation costs compared to other types of legal entities in Hong Kong;
– lighter registration requirements;
– faster registration than for LLC or other business types particularly because of the lower requirements.
Entrepreneurs who want to open a Hong Kong company and decide to start by incorporating a sole trader can later change their business structure.
The limited liability company in Hong Kong
The limited liability company, precisely in the form of the private limited liability company, is one of the most popular business forms. It has a more complex set-up process than the sole proprietorship and must comply with ongoing accounting and reporting requirements, however, investors have the distinct advantage of not being liable for the debts and obligations of the legal entity, as in the case of the sole trader.
The main advantages of the limited liability company in Hong Kong include:
– distinct legal entity;
– the shareholder’s limited liability;
– succession: the company may continue its existence even when there is a change in membership;
– ownership transfer;
– tax advantages: LLC benefit from the low tax regime in Hong Kong.
Choosing between the LLC and the sole proprietorship
The size of the business, the available start-up capital, the business risks and the plans to further expand the business should all be taken into consideration when choosing the most suitable business type.
You can contact us if you are interested in company formation in Hong Kong. Our agents can give you further details on these two popular business types as well as on other types of legal entities, like the partnership or the joint-stock company.