Tom Sanders (“Tom”) owns a computer shop in Wanchai Computer Certer in Hong Kong. His shop has a “Certificate of incorporation”. Tom’s shop was a defendant in a civil case. The final result of this case is Tom’s shop was not favored by judgment, and has to pay damages of HK$1,200,000 to the plaintiff. All the assets of Tom were about HK$655,000, which is much less than the amount of compensation.
To solve Tom’s problem, we must know the real type of Tom’s business. Tom’s computer shop was incorporated in Hong Kong, which is a small business. There are several business types in Hong Kong, among them sole proprietorship and private company are suitable for the small scale business. From the case we noticed there is a “Certificate of incorporation”. According to the provisions of the Business Registration Ordinance (Cap 310), application of company should be made within one month of the date of incorporation with the Companies Registry (CR); upon approval, the CR will issue the Certificate of Incorporation (CI). Even the computer shop is usually run by Tom only, whose nature is a private company rather than sole proprietorship.
Private company in Hong Kong is defined by s 11 of the NCO, which is also devised for the small business. In private company the members are also the managers of the company. Members’ rights to transfer shares are restricted. The biggest difference between sole proprietorship and private company is: sole proprietorship cannot protect personal assets of the business owner; however, except companies without limited liability, members of company (especially company limited by shares) enjoy limited liability. Company limited by Guarantee usually refers to charity or non-profit making organizations. In these organizations, members liabilities are limited by the amount which they agree to contribute to.
Back to our case, the compute shop ran by Tom is not charity of non-profit organization; the compute shop can be company limited by shares or company without limited liability. #p#分頁標題#e#
In the former situation, the computer shop is liable for all debts, and Tom enjoys limited liability. If all the assets of the computer shop cannot clear off the debts, business bankruptcy is a possible outcome, and Tom’s personal saving and home can be protected even the lawsuit is filed against his shop.
In the latter situation, Tom and the computer shop are regarded as the same. Tom is fully liable for all the debts and liabilities of the computer shop. That is to say, Tom is personally liable for all the risks, debts and liabilities of their firms. As stated in the case, Tom has to bear all the HK$1,200,000 debts and all his personal assets would be involved without limited in any legal action taken against his shop. Since all the assets of Tom cannot clear off the debts, there are two possible outcomes: first, Tom can only borrow money from someone else to pay off the debts and ask for compensation from the computer shop or other shareholders if there is any; or Tom can apply personal bankruptcy.