When starting a business, most people may choose to start their business as an unlimited company due to convenience and funding issues. However, after several years of development, the proprietor is likely to have the idea of ”transforming into a limited company”. Is this legally permissible? Is there any way to achieve this goal?
Unlimited companies cannot be directly turned into limited companies
First, in terms of the legal system, the method of “converting” an unlimited company into a limited company with “one application” does not exist in Hong Kong, and the two are not related to “upgrade” or “downgrade”.
The main reason is that the “legal person concept” of an unlimited company and a limited company is different, and their rights and obligations are also different. It must be reiterated that an unlimited company only acts as a personal extension of the proprietor; while a limited company is an independent legal person, so its financial responsibility and legal status are also different, and the registration methods and systems are also different.
If you want to know more about the difference between an unlimited company and a limited company, you can go to another article on this website – “Should you choose a “limited company” or an “unlimited company” for setting up a company? What’s the difference between each?”
Therefore, the method of turning an “unlimited company into a limited company” can only be done in a detour, and the following methods are used:
Method 1. Register a new limited company and “purchase” the business of an old unlimited company
To solve this problem, the most direct and common method is to first re-register a limited company, then “sell” the inherent unlimited company business to this company, and finally close the old company honorably and exchange hands for the limited company’s business. status.
Pay attention to the company name or it cannot be inherited
This process may involve multiple steps, but the procedure is not complicated. The first is the limited company registration process that can be done online and can be completed in less than a week. However, it should be noted that due to the law that the company name cannot be repeated, the old company name may not be used for the new limited company.
Second, a contract needs to be entered into between the old and new companies to “transfer” the assets of the old unlimited company to the new limited company.
In the end, simply closing the old unlimited company and canceling the registration can avoid repeated long-term expenses such as business registration fees.
Moreover, this party can also avoid the confusion of the accounts and administration of the two companies, which are all separated by the date of transfer, which is relatively clear.
Method 2. Register a new limited company and “hold” the old unlimited company
Although the first method is very simple and straightforward, if faced with some licensed businesses, it will be asking for trouble in disguise, and the new company may have to re-apply for relevant licenses from the relevant government departments.
For such companies, it would be a better option to have a newly incorporated limited company “hold” the unlimited company. Based on the independent legal status of a limited company, it is legally possible to operate and hold an unlimited company, and it can also reduce financial risks and do not need to close the old company.
In practice, you can apply for business registration according to the business category “sole proprietorship, corporation, partnership or other unincorporated body, branch business”, using Form 1(a)-1(d) on the website of the Business Registry, then you can apply for business registration. The unlimited company is held by a new limited company.
Note that business registration and bank accounts cannot be inherited
Unfortunately, methods 1 and 2 will change the business registration number and business information (such as company name, and business operation address), which will lead to the need to re-open the bank account, so extra attention is required.
If your company needs to apply for a license and wants to keep a bank account, you may want to consider method three.
Method 3. Business transfer by “partnership – exit partnership”
The last method is to add a new limited company as a partner among the holders of the old unlimited company, and then the old partner can withdraw from the holding to complete the “business transfer”.
For example, Eric, the owner of an unlimited company, can apply to the Commercial Registry to add a new limited company as a new partner, and then Eric can leave the partnership. Then, the business of the unlimited company can be “transferred” to the new limited company.
However, this law needs to comply with the requirements of the Business Transfer (Creditors Protection) Ordinance. The signed transfer notice, gazette, and gazette in 2 Chinese newspapers approved by the Chief Secretary for Administration, and 1 English newspaper circulating in Hong Kong superior.
The above information is for reference only. If you have any questions about unlimited companies and limited companies, we welcome your inquiries.