Hong Kong Public Limited Companies: Is it for you?

The advantages of incorporating a public limited company

Raising capital through public issues of shares

One of the most obvious advantages of a public limited company is the fact that it can raise capital by selling its shares to the public. Since the shares are readily available to anyone willing to buy, the public limited company will have a better chance to raise more capital to reinvest and expand the business. Thus, a public limited company will have more capital to conduct its activities.

Widening the shareholder base and spreading risks

Since a public limited company allows for selling its shares to the public, it, therefore, spread the risks over a relatively larger number of shareholders. Besides, the initial owners of the business can sell their personal shares at a profit while still retaining a significantly larger portion of the business.

Obtaining capital from a larger number of ‘investors’ will be more efficient than the case of the private limited company that can only receive capital from one or two angel investors who might want to have a larger influence in the way the company is operated.

Other finance opportunities

A public limited company will often be advantageous when they are seeking additional sources of finance.

Since a public limited company is expected to, for example, maintain the exchange listing in stock, it can thus help in the improvement of the company’s creditworthiness thereby increasing its chances to qualify for a corporate loan. Besides, public limited companies are in a better position to negotiate for favorable interest rates and loan repayments terms.

Growth and Expansion opportunities

A public limited company is better placed than other business entities where there is a need for business expansion. The fact that it can extend its shares to the public, it can thus obtain more money that is needed to expand their operations. It can thus be able to:

• Grow organically
• Fund research and development
• Settle its debts
• Start new projects and expand through the setting up of other branches.

Prestigious profile and confidence

Having a public limited company is one of the ways that a company can increase its confidence. Since it’s in the public domain that the public limited company is well established, larger, and more powerful, it, therefore, can influence the behavior of employees, consumers, and suppliers.

It is one of the ways that a company can market itself especially if it’s listed in the stock market.

Some of how a company’s credibility can be reinforced include:

• Operating under a strict legal regime compared to the private limited company
• The share capital required is relatively higher
• It has a greater transparency

Transferability of shares

The public limited companies are more easy to transfer as compared to those which are in private limited companies. In as much as the market operates under the willing buyer willing seller, shareholders are less bound to remain with the company and the transfer process is relatively easier as long as the shares are quoted on the stock exchange.

Easier market exit

A public limited company can enhance options for founders to exit the business in the future if they no longer need to continue with the business. The higher transferability rate and visibility of its performance increase the chances of potential suitors to bid their interests in the business.

The disadvantages of incorporating a public limited company

Rules and regulations

There are more regulatory measures in the public limited company since there is a need to protect their shareholders. Some of the restrictions that are put on the public limited company include:

• PLCs must have at least two directors
• AGMs must be held
• High transparency in the accounts must be produced after every six months, among others.

Public Disclosure

The Hong Kong public limited companies are expected to disclose more information to the public especially their accounting information since the members of the public are some of the shareholders of such companies.

Require large initial capital The public limited company would require that the owners have a relatively huge amount of capital. A public limited company in Hong Kong though does not have a minimum share capital required should at least have a share capital that is worth HKD 10,000.

Should I consider starting a PLC in Hong Kong?

Well, since the public limited companies in Hong Kong have both advantages and disadvantages, the question of whether to invest in Hong Kong or not should be a personal decision. However, most people who register their companies will start with a private limited company before later expanding their business to a public limited company in Hong Kong. The number of restrictions that are imposed on the public limited companies is too many that a starter may have a rough time to meet when incorporating a new company as a public limited company.

How to register a public limited company?

For you to incorporate your business in Hong Kong, you will have to register with the Companies Registry.

The first step is to apply for the business name and obtain a certificate of incorporation. You will have to choose a preferred business name for your company. The two types of companies that are available in Hong Kong are:

• Companies that are limited by shares
• Companies that are limited by guarantee

The name that you choose for your company needs to agree with the guidelines of Company naming in Hong Kong.

The next step is to deliver your application that you can either do physically or electronically. The stage of company application requires one to have 3 sets of documents namely:

• The incorporation form
• Copy of the Articles of Association
• Notice to the business registration office

Activities after incorporation

After you have successfully incorporated your business, you will have to complete these steps:

• Open a corporate bank account for your newly registered company
• File the annual tax returns in the IRD
• You will have to convene the annual general meetings yearly as required
• You need to submit corporate and profit tax

Conclusion

In summary, a public limited company can be started by anyone who has the ability and know-how. However, most investors choose to start a private limited company due to the demerits of the public limited company that includes even a company takeover that can be one of the extreme conditions.