A limited partnership is a type of business structure that consists of both general and limited partners. The general partners manage the day-to-day running of the business and assume unlimited liability for the firm’s debts, while limited partners are liable only to the extent of their investments. A limited partnership must consist of at least one general partner and one limited partner.

This structure is best suited for businesses whose focus is on a limited duration project. Some of the businesses that organize themselves as limited partnerships include real estate development projects, private equity funds or venture capital funds. However, for a typical entrepreneur who wants to operate a business for the long term, incorporating a private limited company is the best option. A private limited company is a separate legal entity, has perpetual existence, and offers limited liability to all its members. Moreover, private limited companies enjoy easier transfer of ownership and offer better prospects for raising capital, as compared to other business structures.

Limited Partnership: Basic Facts

Liability

• Hong Kong limited partnerships do not enjoy a separate legal entity status and the partnership is considered a mere extension of its partners. A Hong Kong limited partnership cannot acquire assets, go into debt, enter into contracts, sue or be sued in its own name.
• Limited partners are not personally liable for any business debts incurred by the firm or the wrongful acts of another partner.
• General partners are personally liable for all the debts and liabilities of the business. Each general partner can be held responsible for the actions of another partner (as long as these acts were done in the course of the partnership business).

Taxation

• Profits derived from carrying on a trade, profession or business in Hong Kong are subject to profits tax (i.e. corporate tax). Only profits which arise in or derived from Hong Kong are subject to tax in Hong Kong. There is no capital gains tax, withholding tax on dividends or interest and no sales tax or VAT in Hong Kong.
• Limited partnerships are taxed at the rate of 15% on their assessable profits. However, there is an exception: if one of the partners of the limited partnership is a company, its income from the limited partnership will be taxed at the prevailing corporate tax rate.

Members and Management

• There must be a minimum of 2 partners (1 limited partner and 1 general partner) and a maximum of 20.
• The partners can be natural persons or companies
• A limited partner does not take part in the management of the partnership business and does not have the power to bind the firm.
• Any differences that arise in matters concerning the partnership will be decided by a majority of the general partners.
• A partner can be introduced into the partnership without the consent of the existing limited partners.
• A limited partnership cannot be dissolved on the grounds of death or bankruptcy of the limited partner.
• In the event of a dissolution of a limited partnership, the general partners will wind up the affairs of the firm.

Registration Procedure

A Hong Kong limited partnership must be registered with the Companies Registry of Hong Kong. Foreigners who want to set up a limited partnership in Hong Kong must appoint a professional services firm as its Hong Kong resident agent to handle the registration process. Even for locals, it is suggested that a professional services firm should be engaged that will not only take care of the registration process but will also draft the partnership agreement which defines the internal structure and profit sharing arrangement among the partners.

The registration procedure involves

1. Selection of an appropriate business name. It is important to keep the following factors in mind while choosing a business name:
   • A limited partnership may be registered with an English name, a Chinese name, or an English and a Chinese name.
   • For a Chinese name, you may include English alphabets, but not English words. For example, “J.D.” is acceptable but “John Doe” is not.
   • The name should not suggest a connection with the Government or any public body when no such connection exists or has existed.
   • The name should neither infringe on any trademarks nor be offensive or otherwise contrary to public interest.
2. Registration of the business with the Companies Registry

Documents Required

Registration of limited partnership in Hong Kong generally requires the following documents:

• Completed application form. The following information will be required for filling in the application form:
  • Firm name
  • General nature of the business
  • Principal place of business
  • Full name of each of the partners
  • The term (if any) for which the partnership is entered into and its date of commencement
  • A statement that the partnership is limited and the description of every limited partner
  • The sum contributed by each limited partner and whether paid in cash or otherwise
• Identification documents for each partner

A successful application is usually processed within 5-7 working days and the Companies Registry will issue a Certificate of Registration of Limited Partnership.

Post Registration Formalities

Apply for Certificate of Business Registration

It is mandatory for all Hong Kong limited partnerships to register their business with the Inland Revenue Department’s Business Registration Office and obtain a Business Registration Certificate. Business Registration must be done within 1 month from the date of commencement of business.

Apply for business license(s)

Once you have registered the limited partnership firm, you may also require a business license before you can actually start your business operations, depending on the nature of your proposed business activities. For instance, you require a business license for operating the following types of businesses: restaurants, educational institutes, travel agencies, financial services, import/export business, etc.

For more information on business licenses, refer to Business Licenses in Hong Kong. The firm you have engaged to aid in your business registration can advise and assist you on the business licensing requirement and procedure.

Open a Bank Account

Once you have registered the partnership firm, you can proceed to open a corporate bank account with any of the major banks in Hong Kong. Some of the banks in Hong Kong require the physical presence of the principal partners as part of their due diligence procedure in opening a bank account. The professional services firm you choose will guide you on choosing an appropriate bank depending on your requirements and provide you with the necessary information.

Ongoing Compliance

Once a limited partnership is registered, it must adhere to a few ongoing compliance and filing requirements.

Filing Change of Particulars of the Firm

Any change in the registered particulars of the firm, such as change in the firm’s name, principal place of business, partners, partnership terms, limited partners’ contribution or partners’ liability must be intimated to the Companies Registry within 1 week of the change.

Filing Profits Tax Return

As per Hong Kong company law, limited partnerships formed in Hong Kong must file their profits tax return on an annual basis. Generally, a newly registered firm will receive its first profits tax return 18 months after the date of registration. Normally, profits tax return should be filed within 1 month from the date of issue. You may incur a penalty or even prosecution, if you fail to submit your tax return by the due date.

Small businesses whose gross income does not exceed HKD 500,000 are not required to attach any financial statements along with the tax return. However, they must prepare the accounts, complete the tax return in accordance with the accounts prepared, and retain the accounts and documents for inspection by tax authorities.

Businesses whose income exceeds HKD 500,000 will have to submit the following documents along with their tax return:

• A certified copy of the firm’s balance sheet and Profit & Loss Account relating to the basis period.
• A tax computation indicating how the amount of assessable of profits (or adjusted losses) has been arrived at.

Renewal of Business Registration Certificate

The Business Registration Certificate should be renewed 1 month before expiry on an annual basis or once every three years, depending on whether the Certificate is valid for 1 year or 3 years.