Limited Company vs. Unlimited Company: A Must-Read Guide for Hong Kong Entrepreneurs

Should you choose a Limited Company or an Unlimited Company when starting a business in Hong Kong? This article provides an in-depth comparison in terms of shareholder liability, taxation, costs, and more to help you make the best decision!

Your choice between a Limited Company and an Unlimited Company will directly impact:

• Personal asset risk for shareholders

• Tax burden and financing capabilities

• Management costs and compliance requirements

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1. What is a Limited Company?

A Limited Company is the most common business structure in Hong Kong, where shareholders enjoy limited liability. If the company goes bankrupt, losses are limited to their investment, and personal assets (such as property or savings) remain protected.

A Limited Company is a separate legal entity, meaning it can enter contracts, sue or be sued, own assets, and borrow money under its own name. However, setting up a Limited Company involves higher costs, including appointing a company secretary, hiring an accountant for audits and financial reporting, and paying business registration and incorporation fees.

Best for:

• High-risk industries

• Entrepreneurs who want to separate personal and business assets

• SMEs and startups seeking legal protection for shareholders

• Businesses with significant capital flow needs

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2. What is an Unlimited Company?

An Unlimited Company imposes unlimited liability on its shareholders or partners. If the company fails to repay debts, creditors can pursue the owners’ personal assets (e.g., homes, vehicles).

An Unlimited Company does not have independent legal status, meaning shareholders must conduct business and sign contracts in their personal names. The setup and maintenance of an Unlimited Company are simpler—no registration forms, mandatory audits, or company secretary appointments are required, making it a low-cost option.

Best for:

• Small retail businesses

• Freelancers

• Family-run operations

• Other low-debt-risk ventures

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3. Limited Company vs. Unlimited Company: 5 Key Comparisons

Comparison Factor	Limited Company	Unlimited Company
Shareholder Liability	Limited to capital contribution	Personal assets at risk
Tax Rate	Max. 16.5% profits tax	Personal income tax (max. 15%)
Annual Audit	Mandatory audit reports	No audit required
Financing Ability	Easier to secure loans/investments	More difficult
Ideal Business Size	Medium/large or growth-focused	Small, family-run businesses

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4. Debunking Common Myths

Unlimited Companies always pay less tax?

Hong Kong’s profits tax for the first HKD 2 million is only 8.25%. If profits exceed HKD 2 million, a Limited Company’s 16.5% tax rate may be more favorable than personal income tax (capped at 17%).

Can an Unlimited Company easily convert to a Limited Company later?

Conversion requires re-registration, which may incur tax costs. It’s best to choose the right structure from the start.

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5. Conclusion

Both Limited and Unlimited Companies have pros and cons. Your choice depends on your business needs, risk tolerance, and growth plans.

• Choose a Limited Company if you want asset protection and flexibility.

• Select an Unlimited Company if you run a small operation and want lower costs.

Before finalizing your decision, thoroughly understand the legal and tax implications. If you’re planning to set up a company in Hong Kong, contact Oceanus Strategic Consulting for expert advice. Stay tuned for more insightful articles in the future!