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Should I choose a “limited company” or an “unlimited company” to establish a company? What is the difference between each?

Starting a business first you need to set up a company. Most people may be confused and don’t know the difference between a “limited company” and an “unlimited company”.

When you are deciding which kind of company is suitable for you, you will have a lot of questions on your head, and you might want to know more. This article will explain in detail for you one by one from the shallower to the deeper.

Legal Status

According to the “Companies Ordinance”, a limited company has an independent legal status like a “person” and is regarded as a legal entity, so this company can be regarded as a defendant or a plaintiff.

In theory, as long as the limited company is not wound up, the company can exist forever.

As for an unlimited company, it is regarded as an “extension of the proprietor”, is an asset owned by the proprietor in a private name, and has no independent legal status.

Moreover, once the proprietor or partner dies or goes bankrupt, the continuation of the business will change depending on the agreement.

Taxation and audit

According to the “Companies Ordinance”, each year, a limited company needs to submit an audit report to the Inland Revenue Department and be audited by an independent certified public accountant. 16.5% of the company’s net profit will be paid to the government as profits tax.

Incidentally, the income can be collected from the company’s travel, including the director or shareholder’s remuneration line, which can be claimed, and the shareholder may see that it can also receive the corresponding amount as a personal salary.

On the other hand, unlimited companies are exempted from auditing their accounts by an independent certified public accountant, and simply submit a tax return. The profit tax rate for unlimited companies are 15%.

Proprietors or partners of an unlimited company, as well as their spouse, their salaries or remuneration cannot be tax deducted, but they can still apply for personal salaries tax deductions.

Contents

1. Incorporation of a limited company:

2. Form an unlimited company:

Incorporation of a limited company:

1) You can go to the Companies Registry in person and fill out 3 forms:

(i) Incorporation Form,

(ii) Text of the company’s articles of association and

(iii) Send a notice to the Business Registration Office (IRBR1); deliver the hard copy to the collection counter on the 14th floor of the Government Offices and make payment.

2) For online application, you can go to the “e-Registry” or “CR eFiling” of the Companies Registry to apply and submit the form.

Related fees include company registration fee, nominal capital registration fee, business registration fee, etc.; and annual return registration fee, accountant audit fee, etc., generally starting at about HK$4,000.

Form an unlimited company:

  1. You can go to the Inland Revenue Department in person, complete the Sole Proprietorship Form 1(a) or Partnership Form 1(c), and submit it to the Inland Revenue Department.
  • For online application, you can go to the website of the Inland Revenue Department to apply and submit the form.

Related fees include commercial registration fees and annual renewal fees in the future, approximately HK$2,250.

Summary: Set up a “limited company” or an “unlimited company”?

Mainly depends on the scale of the business, small business turnover is not large, and an unlimited company with a smaller cost and no professional audit may be more suitable for you; but if the business involves more debts or even the risk of being pursued by the law, you may consider establishing a limited company. The company can better protect the rights of the business owner.

The above information is for reference only. If you have any questions, we welcome your tax inquiries.

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