Unlimited companies, like sole proprietorships and partnerships, do not have separate legal status. Therefore, the company cannot enter into contracts in its own right but must use the name of the relevant sole proprietor or partner.
Therefore, if an unlimited company goes bankrupt, the sole proprietor and the partners will face the risk of personal liability or even bankruptcy. In addition, unlimited companies do not have perpetual continuity, which means that when the owner or partner goes bankrupt or dies, the company must be dissolved. There is also a limit on the number of owners. A sole proprietorship can only have one owner. A joint venture can have up to 20 owners. Despite these disadvantages, unlimited companies also have certain advantages. Since unlimited companies do not need to register accounting, the proprietor only needs to settle accounting and tax returns every year, so the accounting and auditing costs are lower.
In addition, the tax rate of unlimited companies is lower. Since Hong Kong implements a two-tier tax rate, the taxable profits of unlimited companies do not exceed HK$200,000 and are subject to a tax rate of 7.5%. Any part of the taxable profits exceeding HK$2 million is subject to a tax rate of 15%.
For a limited company, if its taxable profits do not exceed HK$2 million, it shall be subject to a gradient suppression of 8.25% and any part of its taxable profits exceeding HK$2 million shall be subject to a gradient suppression of 16.5%.
1) Question: What are the differences in legal status between opening an unlimited company and a limited company?
Answer: An unlimited company has no independent legal status and can only act as a proprietor or partner. However, the Hong Kong Company Law defines a limited company as a legal entity. A limited company can open a company account as a company, hold assets (such as stocks, vehicles, and buildings), and sign sales contracts in the name of the limited company.
2) Question: Can assets be held in the name of an unlimited company?
A: No, an unlimited company can only hold assets by the proprietor or partners.
3) Question: Can I sign a contract as an unlimited company?
A: No, an unlimited company can only handle contracts and transactions by the proprietor or partners.
4) Q: Is the growth rate of an unlimited company the same as that of a limited company?
A: The profits of an unlimited company can be taxed as incremental or personal interest: 7.5% for profits of $2,000,000 or less, 15% for profits of $2,000,000 or more. Incremental: 8.25% for profits of $2,000,000 or less, 165% for profits of $2,000,000 or more. Because a limited company is a legal person, it cannot combine the company's donations with the shareholders' personal income tax.
5) Q: Do unlimited companies need to prepare audit reports every year like limited companies?
Answer: A limited company does not need to prepare accounting reports. It can hire a professional accounting firm to prepare the reports or prepare the reports on its own.
Comparison and Differences between Limited Company and Unlimited Company
| Category | Unlimited Company | Limited |
| Tax rate | existTwo-tier tax system7.5% for the first $2,000,000 of profit and 15% thereafter | existTwo-tier tax system8.25% for the first $2,000,000 of profit and 16.5% thereafter |
| Eligibility | Hong Kong Residents or Hong Kong Permanent Residents | Hong Kong or non-Hong Kong residents |
| If the applicant is not a Hong Kong resident, the applicant needs to appoint a Hong Kong resident as the company agent | If the applicant is not a Hong Kong resident, his/her company secretary must be a Hong Kong resident or a limited company registered in Hong Kong If the applicant is not a Hong Kong resident, his/her company secretary must be a Hong Kong resident or a limited company registered in Hong Kong | |
| Sustainability | As long as the owner or partner goes bankrupt or passes away, the company must be liquidated or dissolved | Unless liquidated, it will exist forever |
| Debt Problems | The owner is responsible for unlimited debts of the company | Protect shareholders' private finances, and shareholders' liability is limited to registered capital |
| Legal status | Not a sole legal person, the proprietor cannot enter into a contract with the company | Independent legal person, shareholders can enter into contracts with the company |
| Operating costs | Lower, only need to prepare accounts and file tax returns every year | Higher, accounting and auditing are required every year |
