In a sole proprietorship, the business is conducted by one person i.e. the owner. The procedure in setting up sole proprietorship is simple and related cost is relatively low. In addition, the profits tax rate for sole proprietorship is lower than the rate of limited company. However, since the liability of the owner in the business is unlimited, he personally has to bear all the risks and liability in the business. In the worst case, business failure can lead to personal bankruptcy.

Partnership briefly means two or more persons joining together to conduct business for profits. Partnership enjoys the same advantages and suffers the same disadvantage of the sole proprietorship as mentioned above. In addition, since every partner is an agent of the partnership, each partner is personally liable to the acts of his partners in running the partnership’s business.

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Unlike Sole Proprietorship and Partnership, a company itself is a legal entity. As a result, it can in its own names enter into contract, initiate legal proceeding, be sued and hold property. In addition, it continues in existence until it is dissolved. The death of its member or director usually does not affect its existence.

A company in Hong Kong may be incorporated as a company limited by shares, as a company limited by guarantee or as a company without limited liability. In a company limited by shares, e.g. a private company, the liability of its members is limited to the amount unpaid on their shares. If a company limited by shares is unable to settle its debts in full, the members of the company are not responsible for the unsettled debts after they have fully settled the amount on their shares.

Although the cost in setting up a limited company is higher than that of Sole Proprietorship and Partnership, the advantages of limited company make this kind of organization the most common business organization in Hong Kong.  

Instead of running business in Hong Kong through a private company, overseas company can set up its own branch in Hong Kong to carry on business in Hong Kong. However, if the foreign company’s name is the same as or very similar to the name of a company registered in Hong Kong, the foreign company cannot carry on business in Hong Kong under its original name.

Every foreign company having a place of business in Hong Kong must register as an oversea company according to the Companies Ordinance in Hong Kong. After registration, the branch is required to file Annual Return (usually with certified copies of its company’s financial statements) to Companies Registry. Any subsequent change of the registered information should generally be required to be reported to the Companies Registry within a stipulated period of time.

Every branch registered in Hong Kong should apply for a Business Registration Certificate and renew the Business Registration Certificate annually. Some other requirements relating to private companies as previously mentioned are also applicable to Branch of a foreign company such as maintaining proper book and record and submitting annual profits tax return to the Inland Revenue Department.

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