The Difference: Partnership? Sole Proprietorship? Which Is Good For Your Hong Kong Business?
A person starting or running a business may register the business in Partnership or Sole Proprietorship (in Hong Kong).
Under the governance of Hong Kong Partnership Ordinance, partnerships are businesses that are founded and are co-owned by two or more natural persons. The co-owners carry on the business with a view of sharing profits. The two main types of partnership are General Partnership and Limited Partnership.
General partnership: In a general partnership, each partner of the company must be responsible for the debts and liabilities of the business. Each partner may be held responsible for the actions of another partner that were taken on behalf of or in service of the business. The one advantage of the general partnership is the ease of setup. Partnerships can be set up quickly. When maintaining it, you will have to face fewer statutory controls. You will get no requirement to audit or publish accounts or to register the Partnership Agreement. Except for income tax, no returns are required to be made by partnerships.
When actually running a business in reality, partnership can be used as an incentive by the co-owners to attract and retain employees. When needed, the co-owners may offer partnership to a very important employee to keep him working with the company. With a partnership business, capital may be raised from partners and outside sources (such as any banks). General partners can involve in the decision-making process of the business.
Limited partnership: In a limited partnership, it has both general and limited partners. The liability of a limited partner is restricted to the amount of his contribution to the capital of the partnership. A limited partner is not allowed to involve in the decision making process of the business. Without having to first dissolve the partnership, a limited partner can be replaced by a new partner who are interested in coming into the existing partnership. Capital can be raised without anything that may have affected the management.
Sole proprietorship: A sole proprietorship must register with the Business Registration Office of Inland Revenue Department (IRD). Tax return must be filed each year to the Inland Revenue Department. A sole proprietorship is not an incorporated entity. The owner and business are considered as one thing. The owner (i.e. sole proprietor) has the responsibility for all debts and liabilities. When a debt happens, the owner gets no protection to his own personal assets.
You will have to notify the Inland Revenue Department in writing should the registered particulars of the business have changed within one month of the change. The Business Registration Certificate should be renewed one month before expiry each year. Some certificates are valid for three years. The owner is permitted to hold on to more than one business with each business has its own name. But you each business, he must apply for a Business Registration Certificate separately.