Limited Partnership in Hong Kong
If you are all ready to set up your business as a limited partnership in Hong Kong, then keep reading.
Being one of the top financial hubs for many entrepreneurs in the world, Hong Kong is one of the most competitive economies in the Asia-Pacific region and ranks seventh in the World Economic Forum’s Competitiveness Index as per their 2018 report. More importantly, Hong Kong is also governed by a regulated, reputable international jurisdiction.
Establishing a startup in Hong Kong is much more straightforward than in other cities around the globe. However, before setting up the business, you need to choose the business structure, as this may affect how successful your business will be. To be more precise, your choice will affect you in various aspects of your business such as: exposure to lawsuits, ability to raise capital, company taxes, image of the business, the degree of necessary legal statutory compliance, the ease of business expansion, and many more.
Have you already made your choice for setting up a business? If so, you may consider setting up a limited partnership in Hong Kong. You would have greater flexibility for your corporate structure, as partnerships comes in three different forms: limited partnership, limited liability partnership, and general partnership.
If you are all ready to set up your business as a limited partnership in Hong Kong, then keep reading, as this article will provide you with all the information of incorporating your business.
What is a Limited Partnership?
Before setting up your business as a limited partnership in Hong Kong, you should dive into the details of this type of business. A limited partnership is a business entity that consists of at least one or more limited partners and one general partner who are ultimately liable for all the business debts.
Typically the general partners are the experienced business persons who have unlimited liability for business debts and are completely involved in the decision-making process of your business. On the other hand, a limited partner is an individual or business that provides you with financial resources to the limited partnership.
More importantly, limited partners are not involved in the decision-making process of the company. However, limited partnerships are different from general partnerships, as limited partners can also enjoy general partner-like qualities. This would include the ability to manage the business as a general partner would, as long as a formal contract is in place.
The characteristics of a Limited Partnership in Hong Kong
Once you know what a limited partnership in Hong Kong is, the next thing you should learn are the characteristics of this type of business entity. Limited partnerships are a type of business entity that are best suited for two or more business partners who wish to work on commercial activities together.
In fact, many foreign investors are willing to invest in this type of entity because of its numerous advantages, such as the ease of incorporation, management requirements and raising capital for business. Here are some benefits that you need to know before embarking into the competitive world as a limited partnership.
Pass-Through Taxation
The first and foremost benefit of setting up your business as a limited partnership in Hong Kong is that a limited partnership’s income is not taxed at the business level. In fact, the profit and losses of the business are “passed through” to the partners for reporting on their personal tax returns.
The limited partners need to prepare a special form for partnerships each year, which is known as a K-1. This form allows investors to enjoy the benefit of their own tax planning and work to keep more money in their pockets.
Flexibility
While setting up your business as a limited partnership in Hong Kong, you can work with a professional in order to customize an operating agreement, a contract that governs the functioning and management of the limited partnership. More importantly, the profits of the business entity can be distributed in any way, but the move should comply with the tax laws of Hong Kong.
As an illustration, you can set up your business entity so that the general partners receive a percentage of all dividends on the top of her ownership stake, as they are responsible for managing all the assets and controlling the business. In this way, the general partner would have an incentive to maximize the cash flow and develop more passive income, benefiting the limited partners.
Less Paperwork
Another characteristic of setting up a limited partnership in Hong Kong is that it requires less paperwork than forming a corporation. However, it’s essential to file the partnership agreement with the Hong Kong government in order to stay away from any legal issues.
Investment Opportunities
If you don’t want to get involved in the business, but you are willing to invest, then this type of business entity is best suited for you. A limited partnership offers an excellent opportunity for investors to benefit from the profit of your business without getting them actually involved in the business.
Shared Responsibility of Work
While working with partners, you don’t need to worry about the burden of your business. By setting up your business as a limited partnership in Hong Kong, you can experience the advantage of sharing the workload.
In the growing period of your business, you also need to wear different hats at the same time. So, various partners will bring a variety of expertise. Consequently, the workload can be split per the skills and capabilities of the individuals and will help you in reducing the workload for each partner.
Apart from the workload, the decision-making for companies also rests on the partners equally. This reduces the responsibility of any individual while maintaining a smooth workflow.
Business Liabilities
And last but not least, a critical benefit of forming a limited partnership in Hong Kong is that the limited partners are not liable for the debts of the business. That’s why this type of partnership is known as limited.
By incorporating your business as a limited partnership, you will have less to worry about for raising money for your new business projects because nothing can scare potential investors more than the idea of being personally liable for a company’s mistakes.
Disadvantages of Limited Partnership in Hong Kong
There is no denying the fact that there are a plethora of advantages one can enjoy while setting up the limited partnership in Hong Kong. But if you want to stay away from any legal issues and run your business smoothly, then you should also know about the disadvantages of this business entity.
Risks to the General Partners
The first drawback of forming a limited partnership in Hong Kong is that all the general partners of the company are liable for the business’s debts and obligations. So, if somehow your business is sued or enters into a state of bankruptcy, then all the debts are the responsibility of the general partners. This puts general partners at a significant disadvantage than limited partners.
Challenges for Compliance
General partnerships in Hong Kong require less paperwork than a corporation, but because you are still a business entity with limited partners, you must hold annual general meetings and create a detailed partnership agreement.
Breach in Agreement
The next disadvantage of setting up a limited partnership in Hong Kong is that there is a chance that the partners of your company may disagree in certain decision of the company, which can result in disputes. While having your business as a partnership, every individual’s opinion and decision matters. If such disagreements pile up and take a serious turn, then it could result in a breach in the agreement. This kind of situation can put your entire business at risk.
Registering a Limited Partnership in Hong Kong
By now, you may have a better idea about the pros and cons of setting up a limited partnership in Hong Kong. And if you are willing to set up your business as a limited partnership, then you need to register your business. Once you register your business, a certificate of registration for your limited partnership will be issued and after that, the partners can commence their commercial activities.
The certification of registration is usually issued within five working days. If you want to incorporate your business as a limited liability in Hong Kong, it is always advisable to hire a professional like Startupr in order to complete all the registration process efficiently. We can assist you in documentation preparation and registering your business in Hong Kong.
Comparison with other Business entities in Hong Kong
As stated earlier, the procedure of setting up a limited partnership in Hong Kong is much easier and straightforward than for a corporation and other business entities, and does not require a minimum share capital. Although this type of partnership requires more steps for incorporation as compared to a sole proprietor, limited partnerships have more considerable set-up costs than the general partnership.
However, if you choose to incorporate your business as an actual partnership, then the parties involved can enjoy the maximum advantageous. For example, limited partners can only contribute capital if they are unable to provide their own expertise for running the business itself. The partnership will also have to comply with the existing requirements for taxation in Hong Kong.
Conclusion
By now, you should have a better idea about the pros and cons of limited partnerships in Hong Kong, and more importantly about the procedure for registering your business. Partnerships are a very convenient form of business if it can be operated efficiently. In fact, it is quite a simple business structure and requires less paperwork to get started.
If you are willing to set up your business as a limited partnership in Hong Kong, then look no further than Startupr. We can assist you with the various company types, with our years of experience and expertise in the field of company formation. We offer services for forming a limited liability company with its numerous benefits and availability in incorporation for any nationality.
Are you ready to set up your business in Hong Kong? If yes, then contact us today and set up your dream project!