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Classification of Hong Kong Companies by Business Structure

Sole proprietorship: only one shareholder and one operator.

Characteristics:

  • The operator solely owns the business;
  • The operator is entitled to all the revenues and assets of the business;
  • The operator bears all liabilities for the business;
  • The existence of a solely-owned business has no sustainability;
  • Procedures for establishment are simple. The applicant is only required to register with the Business Registration Office.

Scope of application:

  • Business start-ups;
  • Small-sized businesses;
  • Businesses going after simple operation and avoiding complicated formalities;
  • Businesses which have sufficient financial clout to operate the business solely and do not require financial assistance such as borrowing from banks or seeking partners who can offer financial assistance in operation;
  • Businesses which have relatively low business risk.

Advantages and disadvantages:

AdvantagesDisadvantages
Establishment procedures are simple
Limited capital source
Decision making is easyNo one to share the work
Higher operation efficiencyThe individual has to bear unlimited liability
No need to share profitThe individual has to contribute all the start-up capital
Closer relationship with clientsThe individual has to bear all losses

 

Partnership: a business operated by two or more partners. Partnership is defined by the Partnership Ordinance as the relationship between people who jointly carry on a business with a view to profit. There are limited liability partnership and unlimited liability partnership. 

Characteristics: 

  • A partnership business can have 20 partners at the most;
  • The business can operate within a fixed period or unlimited period;
  • Partners of a general partnership must be jointly responsible for debts and liabilities;
  • In limited liability partnership, the maximum liability of the partners is the amount of their capital contribution;
  • In unlimited liability partnership, one or more than one of the general partners must be held responsible for unlimited debts and liabilities;
  • Partnership must register with the Business Registration Office, while limited liability partnership must also register in accordance with the Limited Partnerships Ordinance.

Scope of application:

  • People who do not wish to solely bear all the burdens and risks involved in running a business but want to share them with other people;
  • Individuals who do not have sufficient financial clout to operate a business solely;
  • People who do not wish to take up the heavy pressure and workload of operating a business;
  • People who want to seek help from others; or
  • People who have found trustworthy and reliable partners.

Advantages and disadvantages:

AdvantagesDisadvantages
Capital is contributed by partners
The individual has to bear unlimited liability
More fund raising sourcesPartners fully bear the company’s debts
Establishment procedures are easyThe business is not an independent legal entity
Work is shared among all partnersPartners may have conflicts
Liability is shared by all partnersBusiness decision making involves all the partners
A pool of expertise and knowledge of all partnersAny contract signed by a partner is binding on all partners

 

Joint-venture: a business financed and operated jointly by two individuals or entities. Its operation model includes making equity investment in entities of different business models, e.g. limited companies, limited or unlimited partnerships etc.

Characteristics: 

  • It is normally established specifically for one or several related projects and not meant for continuous operation;
  • Can be dissolved after completion of the project;
  • Can opt to continue operation.

Scope of application: 

  • Projects involving different technological and professional fields;
  • Individuals or entities who do not have sufficient financial strength to operate the project solely;
  • Those who wish to achieve synergy with various parties;
  • Those who have found trustworthy and reliable partners.

Advantages and disadvantages:

AdvantagesDisadvantages
Different parties can give full play to their strengths
Partners in joint venture may have conflicts
Can handle large and complex projects, and expand business scopeOperation and business decisions have to seek the consent of all parties concerned
More capital--
Achieve greater synergy
--
 
Content provided by Picture: HKTDC Research
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