In recent years, the economy has been sluggish and many companies have faced operational difficulties, with some considering cancelling their business registration. However, the closure process for limited companies and unlimited companies is not the same. If a company is insolvent, different closure methods and issues may also arise. General Accounting has provided company deregistration services for companies of different types and circumstances. Drawing on years of professional accounting experience, we share the differences between closing a limited company and an unlimited company, the procedures and costs for closing an unlimited company, and how to avoid common mistakes when closing a company—so you can plan thoroughly and prepare sufficient funds before cancelling your Business Registration Certificate (BR cancellation).
Why cancel business registration?
If you do not proactively cancel your business registration, your company will still be shown as “in operation” with the Inland Revenue Department (IRD) and the Companies Registry. The IRD will continue to issue the Business Registration Certificate renewal, Profits Tax Return and Employer’s Return each year; the Companies Registry will also require the company to file the Annual Return every year.
Therefore, if you wish to close the company and cancel the Business Registration Certificate, the person in charge must proactively apply to the IRD to cancel the BR.
Further reading: [Company Closure] How to avoid a failed company deregistration? A guide to closing company bank accounts and handling assets
Note: The IRD will not proactively close a company simply because the Business Registration Certificate fee has not been paid.
When cancelling a company’s BR, should you choose winding-up or deregistration?
As unlimited companies and limited companies are entirely different legal entities, the methods for cancelling BR for the two types are completely different.
How to cancel business registration for a limited company
Limited company: If there are no outstanding debts, or the shareholders are willing to settle them, deregistration is the simpler and more cost-effective option. However, if the limited company is insolvent, it can only be closed through winding-up, thereby cancelling the Business Registration Certificate.
How to cancel BR for an unlimited company
Unlimited company: If there are no outstanding debts, you may apply to the Business Registration Office to cancel the business registration within one month of ceasing operations. However, if an unlimited company has liabilities and is unable to repay them, it must be closed through personal bankruptcy.
Why might an owner or partner of an unlimited company go bankrupt when the company closes?
Because an unlimited company carries unlimited liability. Under this core concept, the owner or partners must bear unlimited financial liability for the company until personal bankruptcy. Therefore, if the unlimited company closes and the owner or partners are unable to repay the debts, the person in charge may have to file for bankruptcy voluntarily or be made bankrupt upon a creditor’s petition.
If the court accepts the bankruptcy petition, it may appoint a trustee in bankruptcy to assess and handle the debtor’s assets and liabilities. The bankruptcy period is generally 4 years, during which the debtor’s financial freedom will be restricted and their credit record will be affected. Therefore, before considering bankruptcy, it is recommended to seek professional advice and prepare the relevant documents properly.
Therefore, whenever we are asked: What is the difference between setting up an unlimited company and a limited company?
General Accounting recommends that entrepreneurs understand the four key differences between limited companies and unlimited companies: the legislation governing incorporation, costs, tax filing, and liability for debts. Liability for debts is precisely the financial responsibility that shareholders of a limited company, a sole proprietor, or partners in a partnership must bear when closing a company that is insolvent.
Before setting up a company, entrepreneurs should consult professionals to understand the risks of these two different legal entities before deciding whether to form an unlimited company or a limited company.
With nearly 20 years of establishment, General Accounting professionally provides unlimited company formation and Hong Kong limited company formation services. You are welcome to enquire about an initial free company registration consultation.
Unlimited company closure procedure
1. Submit the BR cancellation form IRC3113
2. File tax returns
3. Letter from the Business Registration Office
4. Completion
Once the unlimited company closure procedure is completed, there is no need to pay business registration fees going forward.
5 most common mistakes when cancelling BR
We often remind company officers that they must cancel the Business Registration Certificate according to the correct procedures. The Companies Registry and the IRD will not know whether your intention in not paying the BR fee is to close the company or simply that you forgot to pay. Below are common mistakes when cancelling BR:
1. Not paying the business registration fee means the business registration will be cancelled automatically.
2. The company has never operated, so there is no need to apply for BR cancellation.
Correct concept: Whether the company has ever carried on business is unrelated to whether BR cancellation is required. The person in charge must proactively apply to cancel the business registration.
3. After applying to cancel the Business Registration Certificate, there is no need to pay past outstanding BR fees, and all penalties will be written off.
4. I am about to live overseas, so it is fine not to cancel the Business Registration Certificate.
Correct approach: Regardless of whether you live in Hong Kong, proactively applying to cancel the Business Registration Certificate is the responsibility of the company officer. If the company is not formally deregistered and BR fees, Annual Returns and tax returns are not filed, it may lead not only to penalties but also to court orders and an adverse personal record.
Real case
A client once lived overseas for a long period but forgot to cancel the business registration. Years later, they were arrested at immigration upon returning to Hong Kong and taken directly to law enforcement authorities.
The client had to attend court and pay fines, and also settle years of outstanding Business Registration Certificate fees and penalties, and handle the company’s tax filings, before they could successfully cancel the business registration.
5. I have already submitted the application to cancel business registration, so there is no need to file NAR1 and the Profits Tax Return.
Correct approach: Before the company is formally struck off, it must still file NAR1. If a Profits Tax Return is issued, the company must also file the tax return within the deadline, or Salaries Tax where applicable.
Frequently Asked Questions
Q: Why can’t an unlimited company apply for winding-up?
A: Because an unlimited company does not have separate legal status. The company’s debts and assets are linked to the owner or partners, who must bear unlimited financial liability until they are unable to repay and file for bankruptcy, thereby settling the company’s debt obligations.
Q: Who can sign the BR cancellation form IRC3113?
A: The owner, partners, director, manager, secretary, liquidator, or principal officer may sign the BR cancellation form.
Conclusion
The above outlines the closure procedures for limited companies and unlimited companies. If you intend to cancel business registration (cancel BR), in addition to understanding the closure methods and costs for limited and unlimited companies, you must also be clear about the common mistakes when cancelling BR.
In addition, before cancelling business registration, the person in charge should carefully consider the company’s and the shareholders’ or owner’s own financial position. Each BR cancellation case has its own characteristics and challenges. It is advisable to consult professionals first and formulate an appropriate and prudent closure plan.
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