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Subsidiary vs. Branch Office vs. Representative Office in Hong Kong

Entity types summary

Businesses have a range of entity types to consider when entering the Hong Kong market. Setting up a company in this region usually entails a moderate capital investment.

It can take several months to complete all the necessary procedures before the business runs. The available investment options include entities designed for limited liability companies, sole proprietorships, partnerships, and foreign company offices.

Explore the various company types in-depth within the Type of Company in Hong Kong guide, a recommended resource for a detailed understanding of each category.

However, if you're looking for a quick and practical comparison of foreign business entity types, our guide delves into two specific aspects:

Entity types comparison

To assist you in identifying the investment entity that aligns best with your goals, we have compiled a comprehensive overview of the primary business entity types available in Hong Kong.

This guide table outlines each entity's core purpose and highlights their most significant pros and cons.

3 Types of Enterprises Summary

 

Options

Common purpose

Pros

Cons

LLC

Private limited company

To conduct its business operations independently means that the company's assets, debts, and earnings remain distinct from those of its shareholders and directors.

  • Separate legal entity
  • Limited liability
  • Easy fund-raising
  • Better public image
  • Seamless ownership transfer
  • Tax incentives available
  • 100% foreign ownership available
  • Set-up complexity
  • Numerous compliance
  • Public disclosure req.
  • Complex liquidation

Public limited company

The main objective of a public limited company is to earn profits.

  • Easy fund-raising
  • Positive public image
  • Smooth mergers and acquisitions
  • Public reports obligations
  • Costly and intricate setup and operations
  • Vulnerability to takeovers
  • Profits sharing and statutory compliance

Public company limited by guarantee

Charities, societies, clubs, and non-profit organizations primarily chose this entity to generate funds for humanitarian causes.

  • Limited liability
  • Maintain control over everything
  • Cannot be distributed
  • Non-sufficient capital possibilities

Sole proprietorship

It is the most flexible business entity. A sole proprietor is usually responsible for carrying all the company's risks and liabilities.

  • Set-up simplicity
  • Clear decision-making
  • Exclusive profits
  • Simple termination process
  • Subject to legal scrutiny
  • Full personal responsibility
  • Limited funds
  • Limited business lifespan
  • Little-to-no public recognition
  • Business sale/transfer

Partnerships

General

Each partner is held responsible for the debts and liabilities of the company to continue operating the business to distribute earnings.

 

  • Easy fund-raising
  • Simple set-up and maintenance
  • Combined expertise
  • Attractive to employees
  • Unlimited liability
  • No personal assets protection
  • Divided goals and ideas
  • Profits sharing
  • Accountable for co-partners actions

Limited

Limited partners have their liability confined to the extent of their capital contribution to the partnership, which means they are not permitted to participate in the business's decision-making process.

  • Limited personal liability for limited partners
  • Easy fund-raising
  • Improved efficiency
  • Fewer compliances
  • Flexible partner changes
  • Full personal liability of general partners
  • Limited roles for limited partners
  • Expensive set-up costs

Investment structures comparison

The most common types of businesses that foreign investors set up are:

  • Subsidiary,
  • Branch Offices,
  • Representative Offices.

If one of these categories aligns with your investment goals, evaluating each based on its distinct practical aspects is crucial. These factors encompass variations in structure, legal responsibilities, compliance with statutory regulations, the timeline for establishment, permissible business activities, and more. Here's a condensed comparative overview of these elements for the more prevalent business types.

Comparison: Subsidiary vs. Branch Office vs. Representative Office in Hong Kong

 

Subsidiary

Branch Office

Representative Office

Separate legal entity

Yes

No

No

Liability

Limited Liability

Extend to the parent company

Extend to the parent company

Entity Name

Can be the same or different from the parent company

Must be the same as the parent company

Must be the same as the parent company

Allowed Activities

Can be the same or different from the parent company

Must be the same as the parent company

Can only conduct market research or coordinate activities. Not allowed to conduct business activities that yield profit.

Ownership

Can be 100% foreign or locally owned

An extension of the parent company only

A temporary administrative arrangement

Maximum number of members

Yes, maximum 50

Not applicable

Not applicable

Key Officer Appointment

A local Hong Kong resident or body corporate  is required to be appointed as a company secretary

A local Hong Kong resident or corporate body is required to be appointed as an authorized representative

A local Hong Kong resident is required to be appointed as a chief officer

Timeframe for registration

4-7 working days

14 working days

1-2 working days

Audit requirements

Mandatory

Depends on the audit requirements of the parent company

Depends on the audit requirements of the parent company

Profits Tax Obligation

Applicable for Hong Kong-sourced profits

Applicable for Hong Kong-sourced profits

Not applicable as it cannot conduct any profit-generating activities

Filing of annual return

Yes

Yes

No

Annual filing

Must file an audited report of the Hong Kong subsidiary with the IRD

Must file branch office’s and the parent company’s accounts or audited reports with the IRD

Not applicable

Cons

Compliance requirements are comparatively high

Compliance requirements are comparatively high

Cannot generate revenue and thus can only be used as a temporary vehicle

Suitable for

Businesses that plan to expand their operation and generate profits, local or foreign

Businesses that plan to expand their operation and generate profits, local or foreign

Businesses that plan to set up temporary structures to conduct market research and act as liaison office

CHANGE SECTION

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