1 – Unlimited Hong Kong company: WHAT is it for?
An unlimited company is a company where all the legal and tax burden is projected on you as a shareholder. For example, your company gets into a legal dispute with the client. This could be that you have not delivered your service up to the expectation of the client or there were other misunderstandings. The client now takes legal action against your company and wins the case.
The court decides that you have to pay a fine of 100.000 USD.
If you have an unlimited company, you have to pay up to this amount until you have no money or assets (stocks, apartments, etc.). This means you have to sell everything you have until this money has been paid.
With a limited company, you are only limited to the amount that is in the company. This means that you do not have to pay with your personal money, but only the money in the company’s name (money in the bank accounts, assets, etc.).
The same logic is followed in terms of tax. There is no corporate tax instead all the tax burden is put on you and becomes your personal income. This can be an advantage if in the country you live personal income is taxed low. Usually, personal tax will be taxed higher than dividend tax (profit paid out for the company to the shareholder). In such cases, an unlimited company is a disadvantage because there is no such thing as a dividend tax.
On the other hand, with a limited company, you have the flexibility between dividends and personal taxes. Thus, you can play around with these two tools in order to optimize your taxes. Usually, a CPA (tax accountant) helps you the right split between how much personal and dividend income you should pay yourself in order to find the right tax structure for your case.
2 – Unlimited Hong Kong Company: WHO is it for?
An unlimited company is mostly suited for onsite businesses such as small stores and restaurants.
This is because of the following reasons:
- Low cost: an unlimited company is cheaper than a limited company. So the barrier to entry is lower for a new business, especially onsite businesses have many costs related to rent, materials, electricity and gas.
- No risk: an onsite local business usually has no big dispute with customer regarding large amount of money. For example, the customer may not like the dish and you do not charge him for that which is low amount of money.
Further reading:
Read more about why foreigners choose a limited Hong Kong company.
3 – Unlimited Hong Kong company: For Online Businesses?
It depends on the business model.
If you run an e-commerce store, it is not advisable to have an unlimited company because banks and payment gateways will not be willing to give you an account.
If you have a consultation business, an unlimited company can be an option because you yourself will represent your business and banks and gateways will find this okay.
However, you should bear in mind the legal and tax burden of an unlimited company to you as a person which we discuss in question 1 above.
Usually, all our clients choose an unlimited company to be on the same side in terms of legal, taxation, and banking.
Further reading:
Read more about what to pay attention to for opening a bank account in Hong Kong.
4 – Unlimited Hong Kong company: For IT services and consultants?
It depends on legal, taxation and costs.
Legally and tax-wise, a limited company will 90% of the cases be the right choice because you save tax mostly by paying yourself out dividends.
If we compare it only based on costs for setup and maintenance, then of course, unlimited company will be cheaper.
5 – Unlimited Hong Kong company: Just like US LLC?
Yes and no.
Yes, because of the tax liability. Both, the unlimited Hong Kong companies and the US LLC, put the tax burden on you, the business owner.
No, because of the legal liability. The unlimited Hong Kong company also puts the legal liability on you as a business owner. The US LLC is a limited company and you are limited by the company’s assets in the bank account and your personal belongings will not be held liable for business mistakes.
This is why the US LLC is a very special company structure that you cannot find anywhere in the world except for the US.
Further reading:
Read more about the differences between an US LLC and a limited Hong Kong company.
6 – Unlimited Hong Kong company: What in case of lawsuits?
In case your client files a lawsuit against you, it will usually not happen in Hong Kong. Most companies prefer to the lawsuits in their own countries or business locations. In that case, the Hong Kong laws may not be as such important as countries’ law where your client is located.
For example, if you have a client in Switzerland, you will probably have a lawsuit there according to the Swiss law.
7 – Unlimited Hong Kong company: Costs
In short, the unlimited Hong Kong company is much cheaper than limited Hong Kong company.
A limited Hong Kong company costs more due to:
- Government fee
- Tax filing
- Bookkeeping
- Audit
- Annual renewal
An unlimited Hong Kong company, on the other hand, does not require audit and bookkeeping, which reduces the amount of maintenance cost per year.
Although you will save money with an unlimited Hong Kong company, in the long run, you will lose more money due to several factors:
- Cost of opportunity: many clients may not be willing to work with an unlimited company due to trust.
- Risk of liability: you may end up losing more money because you are liable with your personal money.
- Cost of time and energy: you may have more disputes with banks and payment gateways to open accounts and give valid reasons for your business model using an unlimited company.
- Less trust: an unlimited company enjoys less trust because it is not visible whether it is compliant with legal and tax laws. On the other hand, a limited company you can see online whether it is compliant or not. You can imagine that clients, banks, and suppliers rather work with companies according to law.
Further reading:
Read more about the costs and duties of a limited Hong Kong company.
