Hong Kong Private Limited Company (PLC) Formation
The Hong Kong Private Limited Company (PLC) comes under the Hong Kong “New Companies Ordinance of 2014” law. A PLC is a separate legal entity protecting the personal assets of shareholders from liability. Also called “private companies limited by shares”, a Hong Kong PLC is the most commonly used type of company for smaller to medium sized companies.
A Hong Kong PLC:
• Restricts the right to transfer its shares;
• Limits the number of shareholders to 50 (not including employees and former employees), and
• Prohibits any access by the public to obtain company debentures or shares.
The liability of each shareholder is limited to the amount (if any) unpaid on the shares held by that shareholder.
While being part of the mainland People’s Republic of China, Hong Kong follows British Common Law. After being a British colony for 99 years, its language, laws, and many customs follow the English. Its estimated population is 7 million. Hong Kong operates a free enterprise, free trade economic system with minimal mainland Chinese government interference.
Hong Kong Benefits
A Hong Kong Private Limited Company (PLC) offers several benefits including:
• Limited Liability: Shareholders are not personally liable for the obligations of the PLC. Liability is limited shareholder’s investment.
• Privacy: While the names of a PLC’s shareholders are included in the public records, there is the option to appoint nominee shareholders.
• One Shareholder: A minimum of one shareholder residing in any country is required to form a PLC.
• No Minimum Authorized Capital: There is no minimum authorized share capital for a PLC.
• Simple Transfer of Ownership: It is simple for the company’s ownership to transfer to another. The sale of shares or issuance of new shares to third parties is a relative simple procedure.
• Perpetual Existence: The PLC has perpetual life as most legal entities.
• English: English is the second language of Hong Kong and can be used in all company documents and government registrations.
Every PLC must register with the Hong Kong Companies Registry which is required by the Business Registration Ordinance by filing a Memorandum and an Articles of Association and will then receive a Business Registration Certificate and a Certificate of Incorporation.
Business registration serves to notify the Inland Revenue Department of the establishment of a business in Hong Kong which may be subject to the payment of a tax on its profits.
The One-stop Company and Business Registration Service was jointly launched by the Companies Registry and the Inland Revenue Department in February 2011 in order to simultaneously register a business with both agencies at the same time.
A Hong Kong PLC must not use a name resembling any other Hong Kong company or corporation. Names can be in Chinese or English, or both. PLC’s are prohibited from using certain words in their names relating to association with government bodies or licensed activities without authority.
Office Address and Local Agent
Every PLC must have a local office address. However, a registered agent is not required as the company secretary fulfills the role of a typical registered agent.
A minimum of one shareholder is required to form a PLC which can be a natural person or a corporation residing anywhere in the world.
Shareholders are not personally liable for the obligations of the PLC. Liability is limited a shareholder’s investment. Shareholders are not considered agents for the company.
All assets including properties belong to the company which can negotiate and sign contracts and incur debts. In addition, the company will have a perpetual life and can contract with its shareholders and file lawsuits or be sued as a separate legal entity.
Directors and Officers
At least one director for the PLC must be appointed who can be a citizen of and reside in any country, but cannot be a legal entity such as a corporation. The sole shareholder can be the director. Shareholders will not be involved in the management of the company as that is the director’s role. Shareholders have the right to vote on certain resolutions including appointing a board of directors.
The director can withdraw cash from the company in the form of director remuneration so as to reduce the profits tax which is levied at a higher rate than that of personal income tax rate.
A company secretary is the only officer required for a PLC who can be a natural person or a corporation. The company secretary must reside in Hong Kong. If the company secretary is a corporation, it should have its place of business or registered office in Hong Kong.
If the PLC only has one director, he or she cannot also be the company secretary.
There is no minimum authorized share capital for a PLC.
No corporate or income taxes are imposed if the sole source of income is generated outside of Hong Kong. The corporate tax rate is 16.5% for all profits derived from income sourced in Hong Kong. The tax is paid by the company and not the individual shareholders. Annual tax returns are filed with the Inland Revenue Department (IRD).
When an employee is hired, written notice must be provided to the Commissioner of Inland Revenue no later than three months after the date of employment for such employment, stating:
• the individual’s full name and address;
• the date employment began; and
• employment terms
Hong Kong’s Public Registry will contain full details regarding a PLC’s shareholders and directors. However, shareholders can appoint nominees for privacy.
Accounting and Audit Requirements
Every Hong Kong company must file annual returns providing full information regarding their directors and shareholders.
Normally, Hong Kong companies must file audited financial statements, but small PLC’s can apply for a “reporting exemption” so they can file simple financial statements.
Hong Kong companies are required to maintain records in Chinese or English to allow the profits to be easily understood. The penalty for failing to comply without reasonable excuse is at maximum HK$100,000
Annual General Meeting
Annual general PLC meetings are not required, but if they do occur, they can be held in any country.
Time Required for Registration
A PLC can be registered in one business day.
Shelf companies are available to purchase in order to have faster registration.
A Hong Kong Private Limited Company (PLC) offers several benefits including: limited liability and privacy for its shareholders using nominee shareholders, only one shareholder required to form a PLC, no minimum authorized share capital, simple transfer of ownership, perpetual existence, and English is the second official language.