Business Entities in Hong Kong: Which One Is Best For You

Choosing the right legal structure in Hong Kong affects your liability, tax exposure, fundraising options, and compliance workload. It also influences how banks, partners, and clients view your business.

Many entrepreneurs rush into a structure that does not fit their goals. This guide explains the main Hong Kong business entities, their advantages and limits, and how to choose the one that aligns with your plans.

What Is a Legal Entity in Hong Kong and Why It Matters

A legal entity is a structure recognized by Hong Kong law that can own property, enter contracts, incur debts, and sue or be sued in its own name. This creates a legal and financial boundary between the business and its owners.

Under the Companies Ordinance (Cap. 622), the main incorporated forms are:

• Private companies limited by shares
• Public companies
• Companies limited by guarantee
• Unlimited companies

Sole proprietorships and partnerships are not separate legal entities. They do not protect owners from personal liability.

Director and Secretary Basics

Private Companies

Private companies must have at least one natural-person director and a company secretary who is either an individual resident in Hong Kong or a body corporate with a registered office in Hong Kong. The sole director cannot also act as company secretary.

Public Companies

Public companies and companies limited by guarantee must have at least two directors.

Audit Basics

All Hong Kong-incorporated companies must prepare annual audited financial statements, unless they are properly declared dormant under section 447 of Cap. 622.

How Your Hong Kong Business Structure Impacts Your Business

Your legal structure affects:

• Liability: whether your personal assets are protected from business debts
• Taxation: whether you’re taxed at individual rates or under Hong Kong’s two-tier Profits Tax rates
• Reputation: how banks, investors, and clients assess your business
• Growth Potential: whether you can issue shares or admit new investors
• Compliance: ongoing filings, audits, corporate secretarial needs, and related costs

Questions to Ask Before Choosing a Business Structure

Before you decide, ask yourself:

• Will you operate solo or with partners?
• Do you plan to scale or raise investment?
• Are you based in Hong Kong or abroad?
• Is your business for-profit or non-profit?
• How much personal risk are you willing to accept?
• Can you meet the ongoing compliance obligations your structure requires?

Comparison of Hong Kong Business Entities

Entity Type Breakdown

1. Sole Proprietorship

A sole proprietorship is owned and operated by one person. There is no legal separation between the owner and the business. Sole proprietorship is best for freelancers and small service providers with low risk

• Legal status: Not a separate legal entity
• Setup time: About 1 to 2 working days
• Liability: Unlimited personal liability

Pros

• Simple and inexpensive to set up
• Full control
• Minimal reporting

Cons

• No personal asset protection
• Limited access to credit and investment
• Limited scalability

2. Partnership (General and Limited)

A partnership is formed when two or more people carry on a business for profit. This is best for Professional services and joint ventures with clear roles and contributions

General Partnership (GP)

• All partners can manage and all have unlimited personal liability
• Governed by the Partnership Ordinance (Cap. 38)

Limited Partnership (LP)

• At least one general partner with unlimited liability and one or more limited partners whose liability is limited to their contributions
• Governed by the Limited Partnerships Ordinance (Cap. 37)
• Limited partners must not manage the business if they want to keep limited liability

Pros

• Shared workload and capital
• Easy and cost-effective to set up

Cons

• General partners face full liability
• Disputes are more likely without a formal agreement
• Limited partners cannot manage the business

3. Limited Partnership Fund (LPF)

The LPF structure supports private investment funds.

• Legal basis: Limited Partnership Fund Ordinance
• Legal status: Not a separate legal person; operates through the general partner
• Use case: Private equity, venture capital, and family office funds

Pros

• Flexible governance for funds
• Privacy compared with public filings for companies

Cons

• Not suitable for trading or operating businesses
• Requires experienced fund professionals

4. Private Limited Company

The most common structure for operating businesses.

A private limited company is best for startups, scaling businesses, and foreign-owned operations that need credibility and access to capital

• Legal status: Separate legal person under the Companies Ordinance (Cap. 622)
• Minimum requirements: At least one natural-person director, one shareholder, one company secretary who meets Hong Kong residency or registration rules, and a local registered address
• Tax rates: Two-tier Profits Tax 8.25% on the first HKD 2,000,000 and 16.5% thereafter
• Audit: Annual audit required unless dormant under section 447 of Cap. 622

Pros

• Limited liability for shareholders
• Separate legal identity
• Share issuance and investment options
• Credibility with banks and partners

Cons

• Higher setup and compliance costs
• Annual audit and returns
• Public disclosure of directors and shareholders

5. Public Limited Company

Used by large enterprises that seek access to public capital.

• Legal status: Separate legal person
• Governance: At least two directors and heavier disclosure
• Markets: May list on the Hong Kong Stock Exchange (HKEX) and is subject to Securities and Futures Commission (SFC) and SEHK rules

Pros

• Can raise capital from the public
• Increased visibility and stature

Cons

• Heavy compliance and disclosure requirements
• Not suitable for small or early-stage companies

6. Company Limited by Guarantee (CLG)

Designed for non-profits and associations. No shares and no profit distribution.

• Legal status: Incorporated with members’ liability limited by guarantee
• Tax status: May apply for tax exemption under section 88 of the Inland Revenue Ordinance if recognized as a charity by the IRD

Pros

• Suitable for clubs, NGOs, and professional bodies
• Limited liability for members
• Grant and donation readiness

Cons

• No profit distribution
• Audit and filings still apply
• Tax exemption is not automatic

7. Unlimited Company

An incorporated entity without a cap on member liability.

• Use case: Niche, privacy-focused situations
• Trade-off: Lower public disclosure in exchange for unlimited liability

8. Branch Office vs Subsidiary

Branch Office

• A branch office is an extension of a foreign parent company
• Legal status: Not a separate legal person; parent bears full liability
• Registration: If a foreign company establishes a place of business in Hong Kong, it must register as a registered non-Hong Kong company with the Companies Registry within one month after that place of business is established and obtain Business Registration with the IRD as required based on activities

Pros

• Faster than incorporating a new company
• No share capital needed

Cons

• Parent carries all liability
• Perceived as less independent than a local company

Subsidiary

• A locally incorporated private limited company owned by a foreign parent
• Legal status: Separate legal person with limited liability
• Requirements: Director, shareholder, company secretary, and a local registered address
• Compliance: Annual audit and filings

Pros

• Legal separation and risk ring-fencing
• Local credibility and banking access
• Eligible for the same Profits Tax rules as local companies

Cons

• Full incorporation process and ongoing compliance

9. Representative Office

A liaison presence for foreign companies. It should not carry on revenue-generating business in Hong Kong (for example, issuing invoices or contracting for sales).

• Legal status: Not a legal entity
• Purpose: Market research, promotion, and liaison
• Registration: Business Registration with the IRD is often required depending on the activities conducted. If business begins, convert to a branch or subsidiary.

Pros

• Quick and inexpensive to set up
• Useful for early market exploration

Cons

• Should not enter revenue-generating contracts or issue invoices
• Limited legal standing

Deciding on the Best Business Entity for Your Business

Choosing a business entity in Hong Kong is more than a registration step. It affects your liability exposure, tax position, credibility with banks and investors, and the ongoing compliance work you’ll need to maintain.

1. Business Goals and Growth Plans

Start with your plan for the next 12–36 months.

• If you expect to scale, bring in shareholders, or raise capital, a private limited company is usually the most practical base.
• If you’re building toward a listing or broad public fundraising, a public limited company may be relevant.
• If you will stay lean and owner-operated, a sole proprietorship or partnership can be simpler (but comes with higher personal risk).

2. Risk and Liability Exposure

Match the structure to the risk profile of your business.

• If you will sign contracts, hire staff, hold inventory, take deposits/retain­ers, or carry meaningful financial obligations, limited liability is often a priority.
• Private limited companies and subsidiaries generally separate business liabilities from personal assets (subject to guarantees, wrongdoing, or other exceptions).
• Sole proprietors and general partners are personally liable for business debts.
• If you are considering an LPF, remember: limited partners typically have limited liability, but the general partner has unlimited liability (commonly managed through a corporate GP).

3. Tax Implications

Different structures are taxed differently, and the facts matter.

Unincorporated businesses are generally charged Profits Tax at the unincorporated rates (and Personal Assessment may apply in some cases).

Companies are taxed under two-tier Profits Tax rates (8.25% on the first HK$2 million of assessable profits and 16.5% thereafter).

Hong Kong generally applies a territorial source principle: whether profits are taxable depends on where they arise and the supporting evidence.

For certain groups, the FSIE regime can affect tax outcomes for specified foreign-sourced income.

4. Investor Expectations and Credibility

If you plan to work with banks, institutional clients, or outside investors, structure matters.

Incorporated entities are often preferred because they support clearer governance, ownership records, and liability separation.

5. Compliance and Administration

Be realistic about the admin you can handle.

• Companies typically need statutory records, annual returns, and audited financial statements, plus a company secretary and a registered address.
• Sole proprietorships and partnerships usually have lighter ongoing requirements, but offer fewer legal protections and governance tools.

6. Professional Advice

There isn’t a one-size-fits-all answer. A corporate services provider, lawyer, or accountant who works with Hong Kong entities can help you choose a structure that fits your risk tolerance, tax profile, and growth plans—without creating avoidable compliance issues later.

Final Words

Selecting the right business entity in Hong Kong is a strategic choice that shapes risk, taxes, credibility, and growth. Review your goals, risk tolerance, and compliance capacity. If you are unsure, speak with a professional.

Ready to start?

Book a consultation with Air Corporate to choose and register the right structure and keep your company compliant from day one.