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Understanding Unlimited Companies

2021-08-24

With the development of the Internet, everyone can become a boss. Yet, there are a lot of things you have to pay attention to before becoming a boss. You might not be aware of them, so that is why we are here to share the characteristics of establishing an unlimited company.

Must you start a company to do business?

According to the Business Registration Ordinance, to engage in any form of business, business registration is required within one month from the start of business. If you operate a business with an average monthly income of less than HKD10,000, you are eligible to apply for exemption of business registration fees and levies. If you do not apply for an exemption or if your business’ average monthly income exceeds HKD10,000 but has no registered business registration, the maximum penalty is a fine of HKD5,000 and imprisonment for 1 year.

Advantages of Unlimited Companies

Compared to limited companies, the operating cost and tax rate of unlimited companies are relatively low. For example, unlimited companies do not need to submit annual returns to the Companies Registry, nor does it require auditing, as long as it makes regular accounting and tax returns. Due to their low cost and simple operation methods, unlimited companies are often established by novices and beginners to the business world.

Disadvantages of Unlimited Companies

As unlimited companies are legally not independent persons, shareholders of an unlimited company will have to bear full responsibility for that company. That is to say, if an unlimited company owes debt, the company’s shareholders bear responsibility in paying off the debt in question, while the creditor will even have the right to apply in court the seizure and sale of any property in the name of the proprietor.

Who can establish an unlimited company?

The qualifications and methods required when applying for an unlimited company are very simple. As long as you are the holder of a “Hong Kong Resident Identity Card” or a “Hong Kong Permanent Resident Identity Card”, you are already eligible to establish an unlimited company.

Procedures for Establishing an Unlimited Company

Applicants should go to the Commercial Registration Office on the fourth floor of the Revenue Tower to apply for business registration. There are one-year and three-year deadlines for application. Because the government sometimes exempts business registration certification fees, applicants may have to endure a lengthy period of time and difficult procedures required for the refund of paid fees. Therefore, we recommend applying for a one-year deadline in application. Applicants will need to bring their own HKID card, while the final step is payment.

The Cost of Operating an Unlimited Company

Generally speaking, in terms of government fees, unlimited companies only need to pay business registration fees every year. In addition, regarding tax filing, unlimited companies are not required to have an audited account for submission to the Inland Revenue Department. Tax returns for unlimited companies (Form BIR60 for sole proprietorships, Form BIR52 for partnership companies) only require additional documents of simple credits and debits, as well as a profit statement with the year’s net profit and loss calculated for it to be submitted to the IRD.

Summary

The method of establishing an unlimited company is simple and the cost is relatively low. However, the liability of shareholders is large. That is why you should think twice before going to the bank to take out a loan for business expansion. Additionally, since unlimited companies are not legal entities, some contracts may not recognize unlimited companies. Therefore, it can be considered a good chance for novice entrepreneurs to try starting a business and learn the ropes.

Pacers is a company that provides multifaceted and professional consulting services. We are eager to grow with our clients, so if you encounter any issues on business establishment, you’re welcome to contact us through our website or email at info@pacersconsulting.com.

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