What are the Disadvantages of a Limited Company?



Limited Company

A limited company has several disadvantages, such as:

  • Publicity: a company is required to disclose certain information to the public by filing returns with the Companies Registry, such as:

– Personal particulars of shareholders

– Personal particulars of directors

– Company secretary

– Transfer of shares

– Capital structure

– Annual Accounts

  • Expenses: There are the expenses of setting up the company, which is slightly more expensive when compared with that of a partnership. There is a continuing obligation on the part of the directors and company secretary of the company. This obligation is to file prescribed returns with the Companies Registry, as well as prepared audited accounts.
  • Complications: A company has to maintain certain registers; such as, registers of members, directors and secretary, of charge, etc., There must be annual meetings held to keep the company running smoothly.
  • Cessation of Business: It can only be closed via liquidation. A liquidator has to be appointed to realize the assets of the company and distribute dividends to creditors/shareholders. If the company is insolvent, the proper mechanism for closing a company would be creditors voluntarily compulsory winding up. The procedure itself is complicated and quite expensive. Quite often it is required to appoint a lawyer to handle the process. The cost of liquidation for even a simple company would be more than HK$10,000.
  • Taxation: The profits tax rate for a company is 16.5%, which is slightly higher than that (16%) for sole proprietorship and partnership. Nevertheless, as a lot of expenses of a company are tax deductible. Therefore, even though the tax rate may be high, it may not really be a disadvantage to a private limited company.

Last, if you have any questions about company incorporation, please feel free to contact us at sales@centreo.hk or +852 31242888.