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By Vlad Cuc, specialist in company formation matters
Shelf companies are legal entities that have been registered and are put on hold until they are sold to entrepreneurs. Shelf companies are also referred to as shell or aged companies. The main reason foreign investors are inclined to purchase a Hong Kong shelf company is the credibility it offers.
Some of the main traits of shell companies, as well as some of their most important advantages, are described in the list below.
They are already registered: this means that they have a Business Registration certificate issued by the Company Registry.
They were not used for trading: this means that they were never engaged in business or commercial activities.
They can be personalized: the name of the company (if available) can be changed and so can the authorized capital; the new owner can also appoint more than one director.
They are a convenient alternative: the business can start more rapidly compared to when an investor opens a new company.
Investors may find that some or all of these characteristics suit their business needs. However, before deciding to purchase an already registered company, it is advisable to perform a due diligence. Many companies that sell these types of companies are credible and offer convenient shelf company packages, however, you can always request additional information from one of our agents who specialize in company formation in Hong Kong.
Registering a shelf company in Hong Kong
The registration of shelf companies is a simple process because it involves no real registration action on the part of the new owner. Once the transfer of shares takes place between the old and the new owner and the sale-purchase contract has been signed, our experts in company formation in Hong Kong can initiate the registration procedure for the bought shelf company.
The company has already been registered with the Company Registry but the ownership details have to be changed once the transfer is complete. As a general rule, any changes in the company ownership or structure are to be registered. This is easily done, usually within one or two working days. One of our experts can help you throughout this stage.
Options like changing the name of the company, appointing a new director are available for clients purchasing shelf companies in Hong Kong. Foreign investors have the possibility to register shelf companies under the form of limited liability companies or companies limited by shares. Once the Articles of Association of the acquired shelf company are ready and they include the details of the new ownership they must be submitted to the Hong Kong Companies Register together with an application form and the paid registration fee.
The company’s identity can be very important for the new owner. This is why the name of the company can be changed from a general one that was initially appointed to a more targeted business name. In order to do so, investors will need to first check if the new name is available. The ones that have already been taken or that are too similar to a chosen name are included in the Index of Company Names, belonging to the Registrar of Companies. Certain words and abbreviations may be used as they are not necessarily considered to infringe on other names.
The shelf company is in many cases a cost-effective alternative. However, different shelf company suppliers will have different costs and the company can be more expensive if it has been incorporated for a longer period of time and thus it has an `older age`. When faced with the option of purchasing a more expensive shelf company, entrepreneurs can compare the costs related to starting a new company in Hong Kong and decide based on these as well as the time needed to incorporate. In some situations, investors may find that a shelf company suits their business needs completely. If this is the case, then they will be able to use the seniority of the company for gaining more credibility in front of banks and creditors and change the company specifics, such as the name and registered address, once the beneficial ownership transfer is complete.
Shelf company package in Hong Kong
Investors have access to various shelf companies for sale in Hong Kong. Companies that specialize in selling ready-made businesses market these, however, caution is advised before proceeding into the final stages of the transaction. It is advisable to seek specialized counsel, such as that offered by our agents who specialize in company formation in Hong Kong. Our team can help you from the start to the finish of the process and our specialists will find a shelf company that suits your needs. Alternatively, we can provide proper advice on an already interesting purchase option.
Our shelf company package can include the following:
•Company selection: our team is ready to provide assistance in selecting a shelf company based on specific investor criteria such as age or type;
•Due diligence: we help our clients with a thorough company verification meant to identify any indicators that might translate into a risky investment; we look at the company’s financial records as well as any previous activities, if there are any;
•Banking and finance: we assist clients during the procedures required for changing the bank account holder for the company;
•Final procedures: we also handle post-transfer steps such as changing the company name, adding more objects of activity as well as other particulars changes that need to be notified to and registered with the Companies Registry.
Our team specializing in company registration in Hong Kong can help you each step of the way when you decide to buy a shelf company or, alternatively, can help you incorporate a new business. If you choose to buy an existing company, our agents will take the necessary steps to ensure that the due diligence process has taken place accordingly. This will allow you to make sure that the investment you are about to enter into is a beneficial one and the company has no hidden debts or liabilities.
The bank account holder changing process will make it mandatory for the new company owner to provide needed specimen signatures to the bank. By appointing one of our agents (through a power of attorney), he will be able to handle most of the bank communications and submissions, meaning that the new business owner will only need to handle a few steps. In most cases, the one who buys a shelf company will gain full bank account access within approximately one week, if all the documents are in order and when the bank does not require additional steps.
Investors should note that shelf companies are not provided with additional licenses and permits. This is because the Business registration Ordinance requires companies to apply for relevant license before they engage in the specific trade or activity. Nonetheless, because the shelf company is registered but had not entered into any activity, it does not have licenses, certificate or approvals that are relevant for specific activities.
This means that once the purchase is complete, the new owners will handle the licensing phase according to the business field in which the business will activate.
Some of the main services for which licensing is required include: accommodation and food services, arts, entertainment and recreation, construction, education, financial and insurance services, human health, social work, import/export, wholesale and retail, information and communications, mining, quarrying, professional business services, real estate, transportation and storage, courier services, water supply, sewage and waste management.
It is also useful to note that specific sectors may be subject to additional regulations.
Advantages of shelf companies in Hong Kong
As mentioned above, one of the greatest benefits of purchasing a Hong Kong shelf company is the credibility an already incorporated company offers to its new owner in regards to business partners and customers. The company can enter into business contracts or business bids much faster than if the investor would choose to open a new LLC in Hong Kong.
Also, according to the Companies Law in Hong Kong, in order to obtain a bank loan, companies may be required to prove they were incorporated a while back and bring proof of their corporate history. For example, if a foreign investor wants to obtain a loan for purchasing computers for the company, a proof that the company was registered six or more months before must be provided. Shelf companies can be used for various business strategies, as foreign businessmen establishing companies in Hong Kong can incorporate the background and history of their enterprise in a ready-made company thus obtaining a better image than creating the same image with a new company.
Our agents invite you to watch a video about the advantages of a Hong Kong shelf company:
Our specialists incompany registration in Hong Kong can provide shelf companies based on the investors’ needs and requests. Shelf companies have a set of attractive features, among which we emphasize the cost-effectiveness (in most cases) and the faster set-up process.
Hong Kong company formation
Hong Kong is an attractive business destination in Asia that offers a favorable business climate and low tax rates for companies.
Investors have the option to set up a new company or purchase a ready-made one, as described in this article. The advantage of setting up a new legal entity have to do with the initial formation choices in which the company’s beneficial owner will be directly involved. These include choosing the type of legal entity as well as the desired name from the beginning. As far as the incorporation time is concerned, this can be slightly longer compared to the purchase and the subsequent ownership transfer transaction, especially when the company’s constitutive documents have to be prepared and signed by the founder (or founders).
Another issue to consider is whether or not a Government funding scheme may be available for the business field in which the company will activate and the general admission criteria (whether or not the company needs to be a newly incorporated one/startup in order to benefit from the programme). If this is the case, our team of Hong Kong company formation agents can help you with complete details about the technology funding schemes that may be accessed and their conditions. Some of these include the Technology Business Incubation Programme or the Social Innovation and Entrepreneurship Development Fund.
The preferred business form in Hong Kong is the private limited liability company. This is also the reason why this type of business entity is most commonly provided as an option for those interested in purchasing shelf companies in Hong Kong.
This legal entity type has many advantages, among which we briefly state the limited liability of the shareholders, only to the extent of tehri investments in the company capital. This means that the business has separate legal identity, it will enter into contracts in its own name, sue and be sued independently from the owner, as would be the case in a partnership or a sole trader. Moreover, the limited liability company is an enduring business structure, it is not influenced by the status of its shareholders or directors, as would be the case of death, the resignation or insolvency.
Because many entrepreneurs who buy shelf companies in Hong Kong are interested in the credibility of the company, and public perception, the limited liability company (LLC) is once again the preferable business form. As a business structure, the LLC is a credible one and, as mentioned, it is also one that inspires permanence, due to the possible transfer of ownership and its endurance despite the status of the shareholders or directors.
The advantages of the limited liability company and numerous sin comparison to the few issues entrepreneurs should take into consideration (such as taxation, reporting and other relevant laws that need to be taken into consideration when conducting business in Hong Kong, such as those related to the director’s personal liability for the performance of the business).
Company taxation in Hong Kong
all companies in Hong Kong benefit from an attractive taxation regime. This is one of the main reasons why investors choose to open or buy a shelf company in Hong Kong. Ready-made businesses are locally registered legal entities, thus they benefit from all the regular tax advantages available to Hong Kong companies.
We list some of the most important taxes for legal entities, for informative purpose before deciding to buy a ready-made company:
- Corporate income tax rate: 8.25% on the first HKD 2 million of assessable profits and 16.5% on the remainder;
- Capital gains tax: 0%;
- Withholding tax on dividends, interest and royalties: 0% for resident companies;
- Value-added tax: there is no VAT or sales tax in Hong Kong;
- Social security contributions: expected from both the employer and the employee; the employer pays a contribution of 5% of the employees’ salary in most cases;
- Real property tax: 15% of the net assessable value of the property;
- Stamp duty: charged in some cases; for the transfer of Hong Kong shares this is 0.2% of the value of the transferred shares.
Companies in Hong Kong – including shelf companies (as they are registered entities), are required to file an annual profits tax return, in most cases within one month from the date of the issue. Companies pay a provisional corporate income tax based on the profits recorded in the previous fiscal year. Penalties apply for those who fail to comply with the filing dates.
The new owner of the purchased shelf company will have the responsibility to observe the tax and compliance requirements. In some cases, a tax representative can be appointed and in this situation the tax return filing date can be extended under a special scheme. Our team of Hong Kong company formation agents can give you more details.
Companies in Hong Kong
According to the Companies Registry, there were 9,162 private companies incorporated in June this year. Other figures also show:
- the total number of companies: 9,260 local companies were registered in June 2020
- the number of private companies: it has increased in 2020, from 7,828 private companies in January to 9,042 in April and 9,155 in May;
- the number of public companies: remains lower compared to private ones, only 4 public companies registered in June 2020;
- the total number of companies incorporated in 2020 (until June) was 9,260.
The numbers presented herein are for local companies registered in the respective months. The legal entities are registered under the Companies Ordinance Chapter 622. Our team of agents specializing in Hong Kong company formation can give you more details about this law.
If you are interested in knowing more about how to open a company in this location,contact us for details and the advantages of every type of company available for registration in Hong Kong.
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