Many people opt for setting up a private limited company when starting a new business. To help you better determine whether a private limited company is right for you, let’s learn about the definition, advantages and disadvantages of this type.

1/ What is a private limited company?

To simply put, a private limited company is the company held with private ownership. This is one of the popular business forms when it comes to offshore company setup in many Asia countries. Click here to learn an A-to-Z guide to offshore company.

As its name denotes, the liability of members in this type of company would be limited to the amount of shares contributed to the company. In other words, if the private limited company has to cope with loss or debts under any events, then you as a member (shareholder) of this private limited company are only responsible to solve your assets for the company’s debt equivalent to the contributed amount you make to the company. There would be no risk for your personal assets.

In addition to its limited liability, a private limited company also has some of following privileges:

  • It is a separate legal entity which can acquire assets, make legal agreements, sue or be sued under its name;
  • It has perpetual succession, meaning it can maintain its existence even in cases of insolvency or death of its members;
  • You share benefits, but at the same time share the work with others, resulting in better running your company with a clear head;
  • It typically brings you tax benefits over some other types of business forms, such as tax deductible allowances, tax saving schemes, etc;

A private limited company, on the other hand, presents some drawbacks that you should take into account:

  • Setting-up procedure for a private limited company can bear a complexity of paperwork if you are going to do everything on your own.
  • There is a required set-up cost to the competent Registry of Company in certain offshore jurisdictions before operating your business as a private limited company or any other types of business entity;
  • Maintenance obligations after setting up your private limited company are unavoidable. To get it easy, you can find your service provider to save time and resources for such annual compliance duties.

2/ Types of private limited companies

A limited company typically includes the private limited company and the public limited company. A private limited company particularly comprises two types:

  • A private company limited by shares; and
  • A private company limited by guarantee

A private company limited by shares is the most common choice for SME companies. It is owned by shareholders. Each shareholder’s liability is limited to the shares value issued to the company.

As for a private company limited by guarantee, this type is preferred by most non-profit organizations or those for charity purposes. Members in this type of business entity are guarantors who shall contribute an agreed amount to the company. This amount is used when the company is in difficulty.

3/ Why should you choose a private limited company in Hong Kong?

When it comes to the best country to set up a private limited company, Hong Kong and Singapore are two top choices for most start-ups and entrepreneurs. Let’s take a look about Hong Kong!

Hong Kong is considered to be “the heart” when it comes to business hubs in the Asia region. Most small to medium size enterprises opt for a private company limited by shares in Hong Kong to conduct business and trade rather than the sole proprietorship or the partnership.

A private limited company in Hong Kong is often attached to [a limited company], or its abbreviation [Ltd], or to be more specifically [Hong Kong private company limited by shares].

One standing-out driving force behind the attractiveness of the limited company in Hong Kong is the tax benefits that this business-friendly jurisdiction will bring. Let’s assume you open a limited company in Hong Kong for the purpose of carrying on a trade and business, the profit tax you need to care is actually payable at a rate of 16.5%, which is much more competitive than many other countries.

Good news is that if your company earns profits arising outside Hong Kong territory, such earnings of your company would be TAX-EXEMPT.

In Hong Kong, foreigners are still allowed to have a wholly foreign ownership company. By setting up a subsidiary which is necessarily a private limited company incorporated in Hong Kong, you can realize your expectation of owning 100% company in Hong Kong as a foreigner.

Despite the fact that there are many other forms of business in Hong Kong, but a private limited company seems to be the one to bring more benefits for you, especially its protection for your personal assets (as a shareholder) and opportunities for expanding business. Also, a Hong Kong private limited company often strongly catches the eye of investors and banks compared to other types.

Be advised that every Hong Kong company regulated under the Companies Ordinance, including Hong Kong private limited company must comply with the filing requirements like annual return on the yearly basis.

Final thoughts

A private limited company is one of the most popular types of business structure to start a new business. The private limited company is highlighted by its privilege over a general partnership or a sole proprietorship. That is it can bring its shareholders the great opportunity to gain a dividend corresponding to their shareholding proportion in the company, meanwhile the shareholder is only liable to the investment up to the contributed amount of share they make in the company.