From Sole Proprietorship to Hong Kong Company

So, you started off with a sole proprietorship, and now you’re thinking of taking the leap to setting up a fully-fledged Hong Kong company. Before you embark on this exciting new step in your entrepreneurial journey, there are a couple of things you need to know.

You Can’t ‘Convert’ Your Sole Proprietorship into a Hong Kong Company

A sole proprietorship and a Hong Kong limited company are completely separate and different types of organizations as explained in our article How Can You Structure Your Business in HK? As such, you cannot ‘transform’ one into another and vice versa. So, what does that mean?

You Must Apply For A New Business Registration Certificate (BRC)

It is not possible to ‘transfer’ the existing BRC of your sole proprietorship to your new Hong Kong company.

To cease business under your sole proprietorship, you will need to report cancellation of your related BRC to the IRD. As for your new Hong Kong limited company, when you proceed to incorporation you will need to apply for a new BRC unique to that company.

You Must Apply For A New Bank Account

When you form a new Hong Kong limited company, you will be starting completely from scratch. Your previous business, transactions, assets, liabilities, etc. under your sole proprietorship will have no bearing on your newly incorporated company.

A distinct separation between your personal and business finances is necessary. Accordingly, you should not use your personal account for your new company; you must open a new corporate bank account.

You May Need To Apply For Business Licences and Permits

As mentioned in our article Regulated and Non-Regulated Activities Hong Kong, few, but nonetheless some, business activities require a business licence or permit to operate. You cannot transfer existing licences/permits granted to your sole proprietorship to your new Hong Kong company. You will need to apply for a new licence or permit as necessary.

You’ll Need To Maintain Your New Company

As you may already know, sole proprietorships are known for being super simple and cheap to register and maintain, whereas a Hong Kong limited company is more complicated and expensive to set up and maintain. For an overview of the minimum maintenance costs you could expect to incur operating a Hong Kong limited company, check out our article, Can You Afford To Incorporate AND Maintain An HK Company?

Why Should You Move From Sole Proprietorship To Hong Kong Limited Company?

When you register as a sole proprietor, although it is easier and less of a burden to do so, you are personally liable for the business. So, as you are personally involved and exposed, when the business grows bigger, the risk is higher and you may then consider separating from your personal body by creating a corporate body.

With that said, if your business is still only very minimal, is low risk and does not carry any liabilities, then you may consider remaining as a sole proprietor. However, if your business is already growing a significant amount, you could benefit from the protection a limited liability company can provide. Not to mention, a limited liability company is considered to be more stable than a sole proprietorship, which may make it easier to source funds from financial institutions and approach investors who tend to shy away from non-incorporated entities.

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