Setting up a Sole Proprietorship or Limited Company | Article – HSBC VisionGo

Entrepreneurs who wish to start a business have a variety of business entities to choose from, the most commonly sole proprietorship or private limite

Entrepreneurs who wish to start a business have a variety of business entities to choose from, the most common company types being a sole proprietorship or private limited company. While many entrepreneurs are eager to begin their business ventures and incorporate their company, it is important to understand the various advantages and disadvantages associated with each company type. In this article, we look to provide insight regarding the advantages and disadvantages of sole proprietorships and limited companies so that entrepreneurs can understand the most appropriate company type for their business.


1. Private Limited Company

Majority of SMEs in Hong Kong are incorporated as a private limited company as this company type has various advantages that other company types do not have. Private limited companies are commonly utilized by companies who are engaging in trade and business. 

 As opposed to a sole proprietorship, a private limited company’s share capital is distributed among various shareholders who are each entitled to shares of the company’s profits.

1.1. Advantages of a Private Limited Company

Limited personal liability

Professional Image

Perpetual Succession

Property Ownership

Tax Benefits and Incentives

Efficiency in Incorporation

1.2. Disadvantages of a Private Limited Company

Regular audits and compliance

Registered Office

Director and Shareholder Disclosure 

Public Disclosure Requirements

Dissolution Procedures

2. Sole Proprietorship

Sole proprietorships are businesses that are owned and operated by a single individual, also known as the sole proprietor. As a single individual is responsible for ownership and operations, there is no legal distinction between the individual and the business entity. 

2.1. Advantages of a Sole Proprietorship

Easy to Incorporate

Efficiency in Decision Making

Entitlement to Profits

Ease of Dissolution

Dissolving a sole proprietorship is easier and less expensive compared to that of other company types due to typically limited size

2.2. Disadvantages of a Sole Proprietorship

Unlimited Personal Liability

Limited Capital

Limited Business Life

Conclusion

Private limited companies and sole proprietorships each carry with them their own unique set of advantages and disadvantages. However, it is important to note that one company type is not particularly “better” than the other – each company type has certain situations which make them more appropriate. As a licensed Hong Kong company secretary, the FastLane Group has extensive experience incorporating companies in Hong Kong. Please contactthe FastLane Group for assistance!

This blog originated on https://fastlanepro.hk/sole-proprietorship-or-limited-company/