Opening a Subsidiary in Hong Kong | Company formation in Hong Kong

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May 29, 2021

Opening a Subsidiary in Hong Kong

A subsidiary in Hong Kong is one of the possible business forms for international investors and entrepreneurs who want to expand their operations. Unlike most of the branch or the representative office, the subsidiary is a separate legal body that may take out the operations of the parent group.

Hong Kong is renowned for being the World City of Asia. It has been one of the freest markets in the world for the last two decades, possessing a renowned financial capital. Along with its tax procedures and potentially higher gains, it was also regarded as an attractive place to do business. It is rated as the least corrupt city-state in the world, above the USA, UK, and Japan.

You’re still curious, with those successes, why Hong Kong is so perfect for business owners and leaders. It’s relatively simple, fast, and affordable to set up a company.

You will own 100% of the business in Hong Kong as a foreigner and you could be the sole director and shareholder. Also, in China or other Asian nations, Hong Kong is a great gateway to develop your company. There are several explanations for this: the administration of economic policy, along with the provision of a stable and transparent judicial system. And an atmosphere like this breeds entrepreneurial development.

Since business owners have a good interest in opening up businesses here, the HK government has a set of rules and guidelines that everybody can read about and adopt. To authorize the beginning of operations of a company, it needs adequate documentation.

Whether you are looking to start a subsidiary business or a branch office in Hong Kong, there are advantages and disadvantages of opening up any company status, and in the consultation, we will have comprehensive details

Meaning of Subsidiary Company in Hong Kong

If you’d like to reap the full benefits of incorporating a non-resident foreigner into your business in Hong Kong, consider launching a subsidiary corporation. Business owners should know the difference between starting up a branch office and a subsidiary corporation to sell directly to the Hong Kong market. The biggest contrast between the two has to do with the association or connections to the parent organization. A subsidiary corporation, although a branch office is not, is considered a distinct legal body. A subsidiary, independent of the parent company and having capital, income, and related expenses, is therefore permitted to conduct its activities.

Key facts about subsidiaries in Hong Kong

The most common business type picked by international companies in Hong Kong is the subsidiary. The subsidiary is a private limited liability company incorporated in Hong Kong and regarded as a separate legal entity from its parent company because the obligations of the subsidiary are not extended to the parent company in the same manner as those of the Hong Kong branch.

The four major characteristics of the Hong Kong subsidiary can be summarized in the following points:

Independence:

This is perhaps the most significant feature of the subsidiary since the Hong Kong corporation is fully independent of the international parent company.

Limited Liability:

The subsidiary is a limited liability company in Hong Kong, which means that both the owners and the parent company have limited liability for the risks and liabilities borne by the subsidiary.

Distinct Management:

The administration of a subsidiary is distinct from that of the parent company; its accounts and accounting are managed by the subsidiary

Flexibility:

The subsidiary is independent of the parent company and this also relates to commercial activities; it can if appropriate, carry out the same business operations and others.

Advantages and Disadvantages of a Subsidiary in Hong Kong:

Certainly, in the accounting and administration department, an individual corporation receives several opportunities. Before embarking on opening a company, you can completely weigh in on the pros and cons. Some we summoned up is below:

Advantages of a Hong Kong Subsidiary

  • Strengthen the parent company’s footprint in Asia, thus getting the option of offering the same items and/or services (or not selling them). Why would this be valuable? It’s because, while enjoying certain advantages of a parent corporation based in another country, a subsidiary may operate independently.
  • Your subsidiary does not have to be related to the parent corporation when it comes to brand marketing, and will thus have a separate customer base (and relationship)
  • Set up quickly, conveniently, and affordably

Disadvantages of a Hong Kong Subsidiary

  • The subsidiary in Hong Kong is a legally incorporated company.
  • The parental corporation is not responsible for its civil obligations and debts and is not liable.

Certain Requirements to Register a Subsidiary in Hong Kong

You must choose a special and authorized name before registering your company, then you must apply an application (on behalf of the subsidiary) to the Registry of Companies.

These are some of the documents needed for registration in HK.

1. Documents from parent company:

2. Copies as Certificate of Incorporation and Articles of Association

3. Articles of Association for the Subsidiary

A list of officers for the company (for non-residents: a copy of their passport and latest residential address proof, for HK residents: a copy of their HKID card)

All the records must be sent to the Companies Registry in Chinese or English. You must send English translations along with it if that is in Chinese.

The process should last some weeks or so. If this is completed, a certificate of incorporation for a non-Hong Kong company will be given by the Companies Register.

Other than that, the owner should also apply to the Inland Revenue Department for a Business Registration Certificate (BRC) and also inquire about any licenses needed for their business.

Processes for Registering a Subsidiary in Hong Kong

After the information is registered with the Hong Kong Companies Registry, a subsidiary is subject to the same regulatory criteria as all other local companies.

In brief, here is the method of registration in HK:

  • Establish the company with a name close to or completely separate from that of the parent company and register subsequently within one month of commencement.
  •  Collect all the important documentation and records for the development of the organization.
  •  Prepare the documents for subsidiary formation
  •  Send the initially signed business papers along with government payments to the government agency.
  •  Scan each paper carefully.
  •  Pick up Business Registration (BRC) from the government department.
  •  Send the documents

Reasons for preferring a subsidiary over a branch

The following are the usual reasons for choosing a subsidiary over a branch:

1. the parent company shall not be responsible for the obligations of its subsidiary; its legal responsibility shall be limited to the balance of any outstanding given share capital and, accordingly, its future loss (in the absence of a guarantee or other security) shall be limited to the sum of any assets which it contributes to the company by way of capital;

2. only the records about the subsidiary must be filed and kept up to date with the Registrar;

3. The subsidiary does not need to file its accounts on the public record whereas in some cases a foreign company will need to;

4. The presence of a branch in Hong Kong makes it more likely that the “parent” company would be sued in Hong Kong even in connection with matters unrelated to its business operations there;

5. Setting up a Hong Kong subsidiary is typically faster and more cost-effective than a Hong Kong branch;

6. If the constitutional paperwork about the ‘parent’ corporation is not in English or Chinese, if a local company is formed, this would not require translation, while translation will be required in the case of a branch;

7. There is no need to arrange for approved copies of any documentation to be integrated into a Hong Kong corporation, while this is important in the case of a branch.

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