Mitsuba International - Legal Entity

Which Legal Entity is Suitable for You?
To carry on business in Hong Kong, one must register as a legal entity and obtain a Business Registration Certificate. All legal entities have to submit Business Registration Fee each year. Generally, there are 3 types of legal entities in Hong Kong:
	Sole Trader/Proprietor Partnership Limited Company

Sole Trader/Proprietor
Sole Trader/Proprietor is a form of business entity owned and operated by a single individual who bears all the risk of the business. It has no separate legal identity, and it is not bound by formalities as long as it carries business lawfully. In particular, it is not necessary to have an annual audit.
Advantages: No complicated setup procedure One-man-own business - freedom of operation Enjoy all the profits earned Easy to and flexible in setup/dissolve Disadvantages: Difficult to expand Unlimited liability No division of labour Difficult to have bank facilities relatively It is suitable for the business that is small amount of capital required, small in scale, and can be operated solely by the owner.
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Partnership
	It is a form of business entity owned and operated by partners (from 2 - 20 members) who contribute capital, pool expertise, and bears all the risk of the business. Partnership is created by an agreement between the partners. Partnership does not have a separate legal identity, and it is not bound by formalities other than those which are self-imposed through a partnership agreement. In particular, it is not necessary to have an annual audit.
Advantages: Pool resources together from partners Pool partners of different expertise Enjoy profits earned shared by partners only Division of Labour Disadvantages: Decisions are generally made before passing through all partners Unlimited Liability No continuity Profits must be shared according to the sharing ratio between each partner Generally, it is suitable for business that requires different expertise, partners in trust, or professionalism.
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Limited Company
In Hong Kong, Limited Company is a common form of business entity that requires, from 13/February/2004, at least 1 director, 1 shareholder, and 1 company secretary. It is formed by registration under Companies Ordinance and must therefore comply with a number of formalities. Limited Company has a separate legal identity and is therefore independent of its owners. The liability of the members of a limited company is limited to the amount (if any) unpaid on their shares. It is subject to a number of formalities, including the requirement for an audit and the need to submit an annual return at anniversary date.
Advantages: Limited liability More productivity and profitability Legal identity, high recognised legal status by society Easier to obtain capital May easier to obtain banking facilities Economy of scale Disadvantages: Decisions are generally made with an agreement of all major directors and passed through all major shareholders Have to submit a set of legal documents annually Have to employ a statutory auditor and submit auditors’ report in every financial year Have to employ a company secretary (he/she must be a Hong Kong resident or a legal corporation formed in Hong Kong) This form of business entity is suitable for business that operates in a relative large scale, obtains capital, and may deal with multi-national business. Click here for more details and requirements of a limited company.