ESTABLISHING A BUSINESS IN HONG KONG - A GUIDE FOR FOREIGN INVESTORS

Hong Kong is a reputable, regulated international jurisdiction where business is clearly booming. According to government figures, the number of companies incorporated in July 2011 reached a record 24,957 and, by year-end, the total number of live local companies registered stood at 956,392 – a 6.31% increase over 2010.

One of the reasons for this increase may be that foreign investors, eyeing the lucrative China market, find it easy to set up their regional or global headquarters on the doorstep, in the Hong Kong SAR.

There are many ways to establish a business in Hong Kong and the most common way is to set up a limited company.

How do I set up a limited company?

This is a relatively straightforward process. At its most basic level, you must have a minimum of one shareholder, holding at least one share, and one director. Both can, in fact, be either individuals or incorporated companies. They are not required to be resident, or incorporated, in Hong Kong.

The company must also maintain a fixed, registered address in Hong Kong – a PO box is not acceptable – and must appoint a company secretary, who must be a Hong Kong resident or a company having a place of business in Hong Kong. The director may also be the secretary except in cases where the company has only one director.

What are my legal responsibilities if I use a limited company?

Once you have set up a limited company, there are a number of annual requirements with which you must comply. These include:

• Filing an annual return with the Companies Registry. This sets out the company’s basic information including its capital structure, director(s) and shareholders(s) and must be filed within 42 days of the anniversary of the date of the company’s incorporation.


• Filing a tax return with the Inland Revenue Department (IRD). Any delay may lead to a fine and/or prosecution.


• Payment of a business registration fee. This is normally HK$2,450, but has been reduced under a government concession to HK$450 for this financial year (for 2011).


• Payment of an annual registration fee .This is payable when filing the annual return. It increases if the annual return is not filed within the deadline. The maximum filing fee is currently HK$3,480 (for 2011).


• Holding an Annual General Meeting (AGM). This deals with the approval of accounts, the appointment of directors, the declaration of dividends and so on. This does not have to be a physical meeting. All issues can be dealt with by written resolution.


• Preparation of the company’s audited financial statements. These should be presented to the shareholder(s) at the annual general meeting.

Can I call my limited company any name I choose?

Your company name can be in English, Chinese, or both. However, it must end with the word “Limited” or the Chinese equivalent. In certain cases you may omit this – for example charities and clubs often do this – but this requires a licence which is difficult to get. You can also change the name at any time via a special resolution.

It is possible to trade under a business name different from the company name on the certificate of incorporation but there are rules governing what name can be used and a separate business registration certificate will need to be taken out and maintained.

Are there any names I cannot use for my limited company?

The company name must not be offensive or contrary to public interest and it cannot contain restricted words such as: Chamber of Commerce, Tourist Association, Trust, Trustee, and so on. Also, the name cannot be the same as, or overly similar to, an existing name.

Until recently, the Companies Registry did not take into account whether a company name had been registered by someone as a trademark. This led to issues with “shadow companies”. A shadow company is one that uses a trademarked name as its company name. While this is not illegal and does not infringe on the trademark – since they are not using it as a trademark – they are deliberately creating confusion.

In a recent change to the law, the Companies Registry has been given wider power to direct a company to change its name. If the company ignores an order to do so, the Companies Registry has the power to change the name of the company.

Will my company’s information be in the public domain?

In general, whatever is filed can be found on-line through a company search. This includes details of the officers of the company and the shareholdings as reported each year in the annual return.

There are deadlines for filing information with the Companies Registry – for example, this is 14 days in the case of a change of directors or secretary – so there will be a time lag between a change taking place and it appearing in public records.

Should I open a branch office instead?

A branch office will normally need to be registered with the Companies Registry under Part XI. However, it is not a separate legal entity in its own right – it is treated as an extension of the foreign parent company. The parent company is accountable for all debts and liabilities incurred by the branch office.

The basic requirements are similar in nature to those of a limited company. They include:

• Approval of the company name. Generally, this would match that of the overseas parent company. However, the Companies Registry can disallow use of the parent company’s name if the name is already in use in Hong Kong or is otherwise deemed misleading or improper.


• An authorised representative who is a local resident. This can be an individual or body corporate (for example firms including solicitors or professional accountants) and is authorised to accept legal notices served on the company.


• An established place of business in Hong Kong. This must be a physical location where, among other things, statutory documents are kept.

Generally, branch offices are subject to the same legal and tax requirements as companies incorporated in Hong Kong. They must also adhere to similar compliance requirements as a limited company such as filing annual returns to the Companies Registry and tax returns to the Inland Revenue Department.

The branch must apply for registration within one month of establishing a place of business in Hong Kong.

Would I be advised to open a representative office instead?

A rep office might, on the surface, seem like a perfectly good option, particularly since few formalities are required to do so. However it is important to recognise that rep offices are not allowed to do business.

You might consider this option if you want to step into the market slowly. It can be useful for preliminary work such as gathering market data, promoting your products or services, and general liaison with organisations – such as chambers of commerce, solicitors, accountants and so on – that you will need to work with when you are ready for a more formal business structure.

Depending on the exact nature of the rep office, registration may or may not be required.  It is best to seek advice before proceeding.

The above article is for your general information only and should not be treated or relied on as legal advice.  For further information please contact:

Mr. Vanky Mak, Partner, Hampton, Winter and Glynn
vankymak@hwg-law.com (852) 2847 2338