A Comprehensive Guide to Setting Up and Managing an LLC in Hong Kong

Starting a business comes with many important legal decisions. Choosing the right entity structure is one of the first steps to consider. A limited liability company (LLC) offers great flexibility and liability protection for owners in Hong Kong. This comprehensive guide walks through everything you need to know to setup and maintain an LLC, from registration requirements to ongoing compliance obligations.

If you are looking to start a business in Hong Kong, one of the first decisions you need to make is what kind of legal structure to adopt. There are different types of business entities in Hong Kong, each with its own advantages and disadvantages.

In this article, we will focus on one of the most popular and flexible options: the limited liability company (LLC)

What is an LLC and why choose it?

An LLC is a separate legal entity that can conduct business activities, own assets, and incur liabilities. The owners of an LLC are called shareholders, and they are not personally liable for the debts or obligations of the company. This means that their personal assets are protected from the risks of the business.

An LLC also has several benefits over other business structures, such as:

• Tax efficiency: An LLC is subject to a low corporate tax rate of 16.5% on its profits, and there is no capital gains tax, dividend tax, or withholding tax in Hong Kong. An LLC can also enjoy various tax incentives and exemptions, such as the two-tiered profits tax regime, the concessionary tax rate for qualifying corporate treasury centers, and the tax exemption for qualifying offshore funds.

• Ease of formation and operation: An LLC can be set up quickly and easily, with minimal requirements and costs. An LLC can also operate with more flexibility and autonomy, as it does not need to comply with the rules and regulations of a parent company or a partnership agreement.

• Credibility and reputation: An LLC is a well-established and widely recognized business entity in Hong Kong and internationally. An LLC can enhance its image and reputation by having a registered office, a company secretary, and a business registration certificate. An LLC can also access various business opportunities and markets, such as the Mainland China market under the Closer Economic Partnership Arrangement (CEPA).

How to register an LLC in Hong Kong?

To register an LLC in Hong Kong, you need to follow these steps:

1) Prepare the necessary documents: You need to prepare the following documents for your LLC:

• Articles of association: This is the constitutional document that sets out the rules and regulations for the management and operation of your LLC. You can use the standard articles provided by the Companies Registry, or draft your own customized articles.

• Incorporation form: This is the application form that contains the basic information of your LLC, such as its name, registered office, shareholders, directors, and company secretary. You can fill out the form online or offline.

• Notice to business registration office: This is the notification form that informs the Inland Revenue Department of your intention to start a business in Hong Kong. You can submit the form together with the incorporation form.

• Identification documents: You need to provide copies of the identification documents of the shareholders, directors, and company secretary of your LLC, such as their passports, identity cards, or certificates of incorporation.

2) Conduct a name availability search: You need to check if the name you have chosen for your LLC is available and not identical or similar to any existing company names in Hong Kong. You can use the online name search service provided by the Companies Registry, or make a written enquiry to the Registry.

3) Pay the fees and submit the documents: You can pay the fees online or offline, by credit card, cheque, cash, or PPS. You can submit the documents online or offline, by email, fax, post, or in person. You need to pay the following fees for your LLC registration:

• Incorporation fee: This is the fee charged by the Companies Registry for processing your incorporation form. The fee is HK$1,720 for applications.

• Business registration fee: This is the fee charged by the Inland Revenue Department for issuing your business registration certificate. The fee is HK$2,000 for a one-year certificate, or HK$5,200 for a three-year certificate.

• Levy: This is the levy imposed by the Protection of Wages on Insolvency Fund for funding the compensation scheme for employees in case of insolvency of their employers. The levy is HK$150 for a one-year certificate, or HK$450 for a three-year certificate.

4) Receive the certificates: After the Companies Registry and the Inland Revenue Department have verified and approved your documents, they will issue the following certificates for your LLC:

• Certificate of incorporation: This is the official document that confirms the existence and registration of your LLC. It contains the name, registration number, and date of incorporation of your LLC.

• Business registration certificate: This is the official document that confirms the registration of your business in Hong Kong. It contains the name, registration number, nature, and commencement date of your business. You can receive the certificates online or offline, by email, fax, post, or in person. The whole registration process usually takes around four working days for online applications, or six working days for offline applications.

What are the statutory obligations of an LLC?

As an LLC, you need to comply with the following statutory obligations under the Companies Ordinance and other relevant laws:

• Maintain company records: You need to keep and update the following records for your LLC:

• Register of members: This is the record that contains the names, addresses, and shareholdings of the shareholders of your LLC.

• Register of directors: This is the record that contains the names, addresses, and personal particulars of the directors of your LLC.

• Register of company secretaries: This is the record that contains the names, addresses, and personal particulars of the company secretaries of your LLC.

• Register of charges: This is the record that contains the details of any mortgages, debentures, or other charges created by your LLC over its assets.

• Register of significant controllers: This is the record that contains the information of the individuals or entities that have significant control over your LLC, such as holding more than 25% of the shares or voting rights, or having the right to appoint or remove directors.

• Minutes of meetings and resolutions: These are the records that document the proceedings and decisions of the board and shareholder meetings and resolutions of your LLC.

• Accounting records: These are the records that show the financial transactions and position of your LLC, such as invoices, receipts, bank statements, and ledgers. You need to keep these records at the registered office or another place in Hong Kong, and make them available for inspection by the directors, shareholders, auditors, or authorities.

• File annual returns and accounts: You need to file the following documents with the Companies Registry every year:

• Annual return: This is the document that contains the updated information of your LLC, such as its name, registered office, shareholders, directors, company secretary, and share capital. You need to file the annual return within 42 days after the anniversary of the date of incorporation of your LLC. The filing fee is HK$105 for submissions.

• Accounts: These are the financial statements that show the financial performance and position of your LLC, such as the balance sheet, income statement, cash flow statement, and notes. You need to prepare the accounts in accordance with the Hong Kong Financial Reporting Standards, and have them audited by a qualified auditor. You need to file the accounts within nine months after the end of the financial year of your LLC. There is no filing fee for the accounts.

• Comply with tax obligations: You need to comply with the following tax obligations under the Inland Revenue Ordinance and other relevant laws:

• Profits tax: You need to pay profits tax on the assessable profits of your LLC derived from Hong Kong, at the rate of 16.5% (currently). You need to file a profits tax return and submit the accounts within one month after the issue date of the return, or within three months if you file online. You need to pay the tax within the specified time limit, or apply for an extension or installment plan if necessary.

• Employer’s return: You need to file an employer’s return and report the income and benefits of your employees and directors, such as salaries, bonuses, allowances, and stock options. You need to file the return within one month after the issue date of the return, or within three months if you file online. You need to withhold and pay the salaries tax on behalf of your employees and directors, and issue them with a tax return and a tax clearance certificate if they leave Hong Kong.

• Stamp duty: You need to pay stamp duty on certain documents that effect the transfer of property or shares in Hong Kong, such as sale and purchase agreements, leases, and share transfer forms. You need to present the documents to the Stamp Office for assessment and payment of the duty within 30 days after the execution of the documents, or within two days if the documents are executed outside Hong Kong.

• Fulfill the responsibilities of directors: As a director of an LLC, you need to fulfill the following responsibilities under the Companies Ordinance and other relevant laws:

• Act honestly and in good faith: You need to act honestly and in good faith in the best interests of your LLC and its shareholders, and avoid any conflicts of interest or misuse of power.

• Exercise due care and skill: You need to exercise due care and skill in the management and operation of your LLC, and use your knowledge and experience to make informed and reasonable decisions.

• Comply with the law and the articles of association: You need to comply with the law and the articles of association of your LLC, and ensure that your LLC does the same. You need to be aware of the legal and regulatory requirements and obligations that apply to your LLC, such as the Companies Ordinance, the Inland Revenue Ordinance, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, and the Personal Data (Privacy) Ordinance. You need to follow the rules and procedures in the articles of association of your LLC, and respect the rights and interests of the shareholders, creditors, and other stakeholders.

How to run the day to day operations of an LLC?

Once you have registered your LLC, you need to run the day to day operations of your business. Here are some of the key aspects you need to consider:

• Issuing shares: You can issue shares to raise capital, reward employees, or transfer ownership of your LLC. You need to follow the procedures and requirements in the articles of association, the Companies Ordinance, and the Stamp Duty Ordinance. You need to update the register of members, file a return of allotment with the Companies Registry, and pay stamp duty on the share certificates.

• Handling finances: You need to manage the finances of your LLC, such as opening a bank account, keeping accounting records, preparing budgets and forecasts, and paying taxes and bills. You need to follow the accounting standards, tax laws, and anti-money laundering regulations. You need to appoint an auditor to audit your accounts and report any irregularities or fraud.

• Holding board and shareholder meetings: You need to hold board and shareholder meetings to make important decisions and oversee the affairs of your LLC. You need to follow the rules and procedures in the articles of association, the Companies Ordinance, and the common law. You need to give proper notice, prepare agendas and minutes, and pass resolutions by the required majority.

• Preparing financial statements: You need to prepare financial statements to report the financial performance and position of your LLC. You need to follow the Hong Kong Financial Reporting Standards, the Companies Ordinance, and the Inland Revenue Ordinance. You need to include the balance sheet, income statement, cash flow statement, and notes. You need to file the financial statements with the Companies Registry and the Inland Revenue Department.

How to wind up an LLC in Hong Kong?

If you want to close down your LLC, you need to wind up the business and settle the affairs of your LLC. There are two ways to wind up an LLC in Hong Kong:

• Liquidation: This is the process of selling the assets, paying the debts, and distributing the surplus of your LLC. You can liquidate your LLC voluntarily or compulsorily. A voluntary liquidation can be initiated by the shareholders or the creditors of your LLC, if your LLC is solvent or insolvent. A compulsory liquidation can be ordered by the court, if your LLC is insolvent or unable to continue its business. You need to appoint a liquidator to carry out the liquidation process and file the necessary documents with the Companies Registry and the Inland Revenue Department.

• Striking off and restoration: This is the process of removing and restoring the name of your LLC from the register of companies. You can apply to strike off your LLC if your LLC has ceased to carry on business, has no assets or liabilities, and has obtained the consent of the shareholders, creditors, and tax authorities. You can apply to restore your LLC if your LLC was struck off by mistake, or if there is a valid reason to revive your LLC. You need to file the application forms and pay the fees with the Companies Registry and the Inland Revenue Department.

Conclusion: Key things to know and resources

In this article, we have covered the essential aspects of setting up and managing an LLC in Hong Kong. Here are some key takeaways and resources for your reference:

• An LLC is a separate legal entity that can conduct business activities, own assets, and incur liabilities. The owners of an LLC are not personally liable for the debts or obligations of the company.

• An LLC has several benefits over other business structures, such as tax efficiency, ease of formation and operation, and credibility and reputation.

• To register an LLC in Hong Kong, you need to prepare the necessary documents, conduct a name availability search, pay the fees, and submit the documents. You can receive the certificates within four to six working days.

• As an LLC, you need to comply with the statutory obligations, such as maintaining company records, filing annual returns and accounts, complying with tax obligations, and fulfilling the responsibilities of directors.

• To run the day to day operations of your LLC, you need to consider the key aspects, such as issuing shares, handling finances, holding board and shareholder meetings, and preparing financial statements.

• To wind up your LLC, you need to choose between liquidation and striking off and restoration. You need to appoint a liquidator or file an application form, and settle the affairs of your LLC.

For more information and guidance, you can visit the following websites:

• Companies Registry: This is the government department that administers and enforces the Companies Ordinance and other relevant laws. You can find the forms, fees, guidelines, and online services for registering and managing your LLC.

• Inland Revenue Department: This is the government department that administers and enforces the Inland Revenue Ordinance and other relevant laws. You can find the tax rates, rules, returns, and online services for filing and paying your taxes.

• InvestHK: This is the government department that promotes and supports foreign direct investment in Hong Kong. You can find the information, advice, and assistance for starting and expanding your business in Hong Kong.

• Hong Kong Trade Development Council: This is the statutory organization that promotes and facilitates trade and investment between Hong Kong and the world. You can find the market intelligence, business opportunities, and trade events for your business sector.

We hope you have found this article helpful and informative. If you have any questions or feedback, please feel free to contact us. Thank you for reading and good luck with your business! 😊

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Disclaimer: This blog post is for general information only, not legal advice. The law of Hong Kong may change and I am not liable for any actions based on this blog post. Consult a lawyer before acting on this blog post.