Understanding General Partnership in Hong Kong

Selecting the right business structure when doing business in Hong Kong is pivotal for success. Among various options, the General Partnership stands out for entrepreneurs seeking to unite resources and expertise towards common business goals.

This article delves into the nuances of General Partnerships in Hong Kong, highlighting its setup process, advantages, challenges, and legal considerations.

What is a General Partnership in Hong Kong?

A General Partnership is a form of business entity with 2 to 20 partners joining each other to carry on business and share profits.

Each partner is held responsible for the business’s debts and liabilities. This includes accountability for actions undertaken by any partner on behalf of the business.

All the partners can combine their assets, so a partnership may be able to raise enough capital easier than other business structures.

A General Partnership in Hong Kong is an ‘unlimited’ and ‘unincorporated’ company, as opposed to a ‘limited’ and ‘incorporated’ company. As such, there are more relaxed reporting requirements and statutory requirements.

Subsequently, the tax is slightly lower than for incorporated companies. Taxation for a General Partnership is:

ProfitsTax rate
< HK$ 2 million7.5%
Remainder exceeding HK$ 2 million15%

All of the partners participate in the management of this business structure but they are not specifically remunerated for being part of the said partnership. They can, however, derive income in the form of a salary if they act as managers.

Any new partners are added to the general partnership only upon the approval of the existing ones.

How to set up a General Partnership?

Notably, a General Partnership is relatively easy to set up. There should be at least 2 members and a maximum of 20 members. As there are no minimum share capital requirements, it makes it an attractive option for many entrepreneurs.

General partnerships are registered with the Business Registration Office within one month after they commence their business activities.

As opposed to a Limited Partnership, a General Partnership does not need to register with the Companies Registry in Hong Kong. Therefore, a GP is an ‘unincorporated’ business entity.

The Partnership Ordinance (Cap. 38), regulates partnerships in Hong Kong and outlines the incorporation, management, and dissolution processes for these entities.

One can set up a Partnership Agreement, either verbally or written, to state and control the duties and rights of each partner. Any matters that are not expressed in the Agreement, will default to the rights and obligations as set out in the Partnership Ordinance.

Advantages of Forming a General Partnership in Hong Kong

Ease of Setup and Management: General Partnerships offer a straightforward setup process and a high degree of flexibility in internal management.

Fewer Statutory Controls: Unlike companies, partnerships in Hong Kong are not subjected to stringent statutory controls, audits, or public disclosures of accounts.

Incentivisation: The possibility of offering partnership can be a strong incentive for attracting and retaining talent.

Capital Raising: Partnerships allow for easier capital raising from both partners and external sources.

Challenges and Considerations

Unlimited Liability: The most significant downside is the unlimited liability borne by the partners, which extends to business debts and actions of other partners.

Dispute Risks: Personal conflicts and disputes can significantly disrupt business operations and management.

Profit Sharing: All profits must be divided among the partners, which might lead to disagreements or dissatisfaction.

Furthermore, without an independent legal personality, partners cannot enter contracts in the company’s name, adding a layer of complexity to business operations.

HKWJ can help

General Partnerships in Hong Kong offer a blend of flexibility, simplicity, and potential for growth, making them an appealing choice for many entrepreneurs.

However, the implications of unlimited liability and shared responsibilities necessitate a careful, informed approach.

Aspiring business owners should consider all aspects of forming a General Partnership and seek professional advice to ensure their venture’s success in Hong Kong’s competitive marketplace.

The HKWJ Group is a one-stop holistic service provider and advisor to help your business grow.

Within the Group, HKWJ Tax Law assists with financial administration, such as payroll, bookkeeping and accounting, as well as tax and legal matters. At Triple Eight Ltd, we provide a wide range of professional and corporate services, such as company secretarial services, bank account opening and company incorporation.

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