Limited Company vs Unlimited Company

5 mins read  l  Published: January 8, 2024  l  Updated: February 2, 2025

Limited Company vs Unlimited Company, Startuper how to choose ?

Many of our clients wondering how to choose between a limited company and an unlimited company (Sole Proprietorship or Partnership) involves several considerations. Here are some key factors to help you decide:

1. Liability

  • Limited Company: Shareholders' liability is limited to the amount unpaid on their shares. This means that personal assets are protected in the event of bankruptcy or legal claims against the company.
  • Unlimited Company: Shareholders have unlimited liability, meaning their personal assets can be used to cover the company’s debts. This poses a higher financial risk to shareholders.

2. Profits Tax Return Filing

  • Limited Company: They must file annual audit report and financial statements together with Profits Tax Return to Inland Revenue Departement of Hong Kong
  • Unlimited Company: They do not need to file annual audit report with Profits Tax Return to Inland Revenue Departement of Hong Kong. Usually, they need to file unaudited financial statement to the Inland Revenue Departement

3. Taxation

  • Limited Company: First HK$2 million net assessible profits after allowable tax deduction subject to profits tax 8.25%. Profits above HK$2 million will be subject to profits tax of 16.5%. Shareholders do not need to pay tax on dividends received.
  • Unlimited Company: Profits can be taxed as personal income for the owners.

4. Perception and Credibility

  • Limited Company: Generally viewed as more credible by creditors and investors due to the limited liability structure.
  • Unlimited Company: May be perceived as riskier due to the unlimited liability of its owners.

5. Management Structure

  • Limited Company: Must adhere to a formal structure with shareholders, directors and company secretary and decisions are made in accordance with Company Ordinance of Hong Kong.
  • Unlimited Company: May have more flexibility in its management structure, as it can operate with fewer formalities. Just require sole proprietor for Sole Proprietorship and require partners for Partnership. 

6. Share Transferability

  • Limited Company: Shares are often freely transferable, allowing for easier investment and divestment.
  • Unlimited Company: Share transferability can be more restricted, depending on the company’s governing documents.

7. Formation and Regulation

  • Limited Company: Requires registration with the relevant authorities (Companies Registry and Inland Revenue Department) and must comply with ongoing regulatory requirements.
  • Unlimited Company: Requires registration with the Inland Revenue Department. 

Summary

In summary, the choice between set up a limited and unlimited company often hinges on considerations of liability, regulatory obligations, and financial risk. Limited companies provide greater protection for owners but come with more stringent regulations. Unlimited companies may offer more flexibility and privacy but pose higher risks to personal assets.

For frequently asked questions (FAQ) of hong kong limited company incorporation, please visit our web page link at Hong Kong Company Registration - Fee Schedule.

For more information of hong kong unlimited company registration, please visit our web page link at Unlimited Company Formation.

You can also visit the following link (How to register a new company ?) of the Hong Kong Companies Registry to have more company formation information.