中南騰飛顧問有限公司

Incorporation of Hong Kong Company

Types of Hong Kong Company

Comparison between Sole Proprietorship, Partnership and Private Limited Company

Before establishing a business, investors should consider carefully the appropriate business structures: Sole Proprietorship, Partnership or Limited Company. Factors need to be considered include: scale of the company, risks, numbers of shareholder and tax arrangement. The following is the comparison of the characteristics of Sole Proprietorship, Partnership and Private Limited Company:

	Sole Proprietorship	Partnership	Private Limited Company
No. of owners/ shareholders	Only the sole proprietor alone.	2 - 20 partners.	1 - 50 shareholders.
Legal Status	The owner does not have separate legal entity.	A partnership itself and its partners do not have separate legal entity.	A private limited company has separated legal entity and it is separated from its owners (i.e. shareholders).
Liability	A sole proprietor has unlimited liability, i.e. personal assets may be requested to settle liabilities, if any.	All the partners are held responsibility for the debts except for the limited partner, if exist.	The liability of shareholders is limited to their respective shareholdings.
Financing Ability	More difficult to obtain loan and capital can only be provided by the sole proprietor.	Capital can be contributed by the partners.	Capital can be contributed by shareholders and it is easier to obtain the facilities from the bank or financial institutions.
Taxation	Auditing is not required. Profit is subjected to profit tax but sole proprietor's personal expenses are non-deductible (including the salary of the owner and his or her spouse).	Same as sole proprietorship.	Auditing is required annually. The profit is subjected to profit tax and company's expenses are usually deductible (Directors' remuneration can be deducted and calculated under salaries tax ).

Remarks :

1. A Limited company can lower the tax liability relatively easier than Sole Proprietorship and Partnership.

2. Ownership and management are separated in limited companies. Directors and shareholders have separated responsibilities. Directors are responsible for the daily operation and the shareholders are responsible for contribution of capital. If the directors commit illegal acts, the shareholders need not bear it.

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