The essential guide to setting up a private limited company in Hong Kong

What is a private limited company in Hong Kong?

A private limited company in Hong Kong is a business entity limited by shares. It is a distinct legal entity, separate from its shareholders.

This separation provides a key advantage: limited liability. Shareholders are only liable for the amount they have invested in the company. The company is governed by the Hong Kong Companies Ordinance and is a preferred structure because of its flexibility and credibility.

The characteristics of a private limited company, or sometimes called private company limited by shares, in Hong Kong are set out in Sections 8 and 11 of the Ordinance, which define a company limited by shares and a private company, respectively¹.

• Section 8 states that a company is a company limited by shares if “the liability of its members is limited by the company’s articles to any amount unpaid on the shares held by the members.”
• Section 11 requires that a private company’s articles must include the following three restrictions:
  
  • Restrict the right of members to transfer shares
  • Limit the number of members to 50
  • Prohibit any invitation to the public to subscribe for any shares or debentures of the company

Understanding limited company structure

In Hong Kong, the structure of a limited company is designed to be accessible, allowing entrepreneurs to start a business with minimal capital and a straightforward setup.

For instance, a Hong Kong private limited company requires at least 1 shareholder and 1 director, who may be the same person. It must also appoint a company secretary, who must either be a Hong Kong resident or a Hong Kong-registered company. Additionally, a registered office address in Hong Kong is mandatory for official correspondence.

Share capital requirements are minimal, as Hong Kong has abolished the need for a minimum nominal share value. Furthermore, share capital may be denominated in foreign currencies, offering flexibility for international businesses.

Benefits of a private limited company in Hong Kong

1. Tax benefits

Hong Kong's tax system is one of the most attractive in the world. Private limited companies benefit from a low corporate tax rate of 16.5% on profits sourced from Hong Kong. The territorial tax system ensures that only profits derived from Hong Kong operations are taxed, making it an excellent choice for businesses with international operations.

Hong Kong also has no capital gains tax, sales tax, VAT, or withholding tax on dividends, further enhancing its tax-efficient environment².

2. Limited liability

One of the most significant advantages of private limited companies in Hong Kong is the protection it offers to its shareholders. The company is a separate legal entity, and its shareholders' liability is limited to their invested share capital. This protects personal assets from business debts and legal issues, providing a secure foundation for business growth.

3. Flexible business operations

A Hong Kong private limited company can engage in a wide range of commercial activities without requiring prior government approval. This flexibility is a key attraction for businesses in various sectors, from trading and consulting to e-commerce and manufacturing. The company structure supports both local and offshore business operations, making it an ideal hub for international trade.

How to set up a private limited company in Hong Kong

General requirements

To register a private limited company, you'll need at least one shareholder, one director, and a company secretary. The company name must end with "Limited" or "有限公司" and be approved by the Companies Registry. A registered office address in Hong Kong is also a mandatory requirement. While there is no legal minimum share capital, a minimal amount is often used for registration purposes.

Registration process

The registration process is designed to be straightforward and can be completed online or through professional service providers. The key steps include³:

• Name Approval: Submitting a proposed company name to the Companies Registry for approval.
• Document Preparation: Preparing essential documents like the Articles of Association.
• Submission: Filing the incorporation documents and paying the required fees.

Appointment: Officially appointing the directors, shareholders, and company secretary.

Professional service providers can help simplify and expedite this process, ensuring all requirements are met correctly.

Post-incorporation obligations

After your company is incorporated, there are ongoing compliance requirements you must adhere to. These include³:

• Annual Filing: Submitting annual returns and financial statements to the Companies Registry.
• Auditing: Arranging for a statutory audit of the company's financial statements.
• Tax Reporting: Filing profit tax returns with the Inland Revenue Department.
• Significant Controllers Register: Maintaining a register of significant controllers as mandated by law.

The company secretary plays a crucial role in managing these ongoing obligations, ensuring the company remains compliant with the Hong Kong Companies Ordinance.

Risks and challenges of a private limited company

While a private limited company offers many benefits, it's not suitable for everyone. The setup and ongoing compliance costs may be too high for very small or informal businesses. The legal and administrative obligations, such as annual filings and audits, require time and resources.

Additionally, the public disclosure of company details, including director and shareholder information, may be a concern for business owners who value privacy. It's essential to carefully consider these factors and weigh them against your business goals before incorporating in Hong Kong⁵.

Simplify your finances from day one with Aspire

Setting up a private limited company is the first step to operating a business. However, starting a Hong Kong company doesn’t stop there. Effectively managing your finances from day one is just as essential, as it can determine your company’s long-term sustainability.

From our experience, we’ve seen some Hong Kong companies struggle to manage and control their finances in the early stages. Common challenges include failing to track expenses and receivables in real time, as well as making late payments to suppliers. These issues put pressure on cash flow and can eventually force businesses to shut down. That’s why it’s crucial to establish strong financial management from the very beginning to ensure your business can thrive in the long run.

This is where Aspire can help. With our Business Account, you have everything you need to manage your finances from day one. Aspire enables you to:

• Set budgets at the client, project, or team level and monitor all expenses in real time, ensuring actual spending stays in line with your budgets
• Create and send invoices in just a few clicks, while tracking their status in one dashboard for full visibility over cash inflows
• Automate and schedule payables, allowing you to make timely supplier payments and avoid late fees
• Earn 1% cashback on SaaS and digital marketing spend with our Corporate Cards

Whether you’re just starting out or scaling your business in Hong Kong, Aspire gives you the confidence to manage your finances efficiently so you can focus on growth.