There are two common types of joint venture:
- Incorporated Joint Venture
- Contractual Joint Venture
Small businesses may consider setting up a joint venture with a local enterprise in Hong Kong. Below are the different characteristics of incorporated and contractual joint ventures to enable you to choose the structure that best suits your requirements.
Incorporated Joint Venture
An incorporated joint venture is often formed as a limited liability company. It must be registered in the Company Registry in accordance with the Companies Ordinance.The parties may determine terms and conditions relating to sharing of profits and losses, right to vote, ownership structure in a shareholder agreement or joint venture agreement. Since this joint venture will be a separate legal entity, the parties will have limited liability and profits can be distributed as dividends. Essentially, this structure is regulated by the articles of association and shareholders agreement.
Keep in mind that if the joint venture is conducted in the form of a company, it is governed by the Companies Ordinance (Cap. 622) and the common law. Though if the company is incorporated in the BVI or Cayman Island, it would be governed by the laws of the respective jurisdiction.
Contractual Joint Venture
In a contractual joint venture, the parties enter a contract to cooperate to achieve a business goal. Unlike the incorporated joint venture, no new corporate body is formed. This form of joint venture is advantageous if parties are working on a one-off undertaking for a short period of time, since there is no filing or continuous compliance requirement except for the mandatory business registration.Therefore, the cost is lower and parties can maintain a higher level of privacy.
Key takeaway
- Joint ventures can be incorporated or contractual in Hong Kong.
- Incorporated joint venture is often structured as a limited liability company
- Contractual joint venture is formed by entering into a contract whereby the parties agree to cooperate to achieve a business goal.