When evaluating a potential business partner or investment target in Hong Kong, one key aspect to assess is the company’s financial transparency. Many small private companies in Hong Kong benefit from reporting exemptions that reduce their disclosure burden—but for outsiders, this can also mean less visibility into their financial health.
Understanding whether a Hong Kong company qualifies as a “small private company” and what exemptions it may claim is crucial for effective due diligence. Relying solely on publicly filed documents without considering these exemptions can lead to an incomplete—and sometimes misleading—view of a company’s true financial position.
In this guide, we’ll explain what a “small private company” is under Hong Kong law, what reporting reliefs are available, and, most importantly, how you can verify a company’s eligibility and ensure you’re not missing hidden risks.
What is a “Small Private Company” in Hong Kong?
Under the Hong Kong Companies Ordinance (Cap. 622), a private company may qualify as a “small private company” and be eligible for simplified reporting and audit requirements if it meets at least two of the following three criteria for two consecutive financial years:
- Total annual revenue not exceeding HKD 100 million.
- Total assets not exceeding HKD 100 million.
- Average number of employees not exceeding 100.
These thresholds are designed to reduce the regulatory burden on genuinely small businesses. If a company qualifies, it may be exempt from preparing a full set of audited financial statements and can instead file simpler financial reports with the Companies Registry.
What Exemptions Can a Small Private Company Claim?
Qualifying small private companies can benefit from the following reporting reliefs:
- Audit exemption – They may not need a full statutory audit. Instead, their financial statements can be reviewed by a practicing accountant without a full audit opinion.
- Simplified financial statements – They can prepare abbreviated profit and loss accounts and balance sheets, omitting certain detailed disclosures required for larger companies.
- Exemption from preparing a directors’ report – In some cases, they may not need to file a detailed directors’ report.
These exemptions are reflected in the documents filed with the Hong Kong Companies Registry. For example, instead of a full audit report, you might see a “report by a practicing accountant” or simplified statements with fewer notes.
Why This Matters for Due Diligence
At first glance, reduced reporting might seem like a minor detail—but it can significantly impact your risk assessment:
- Less financial detail – You may not see a full breakdown of revenue streams, related-party transactions, contingent liabilities, or segment information.
- Limited audit assurance – Without a full audit, there’s less independent verification of the numbers.
- Potential for hidden risks – Some companies might structure themselves to just meet the “small” criteria, intentionally staying below thresholds to avoid scrutiny.
If you’re considering a partnership, loan, or investment, overlooking these exemptions could mean missing red flags such as undisclosed debts, poor cash flow, or governance issues.
How to Check If a Hong Kong Company Qualifies
You don’t have to take a company’s word for it—you can verify its eligibility using public information. Here’s a step-by-step approach:
1. Obtain the Company’s Latest Financial Statements
The first place to check is the financial statements filed with the Hong Kong Companies Registry. You can access these through the Registry’s eSearch platform or by ordering a copy of the company’s latest annual return.
Look for:
- The auditor’s report (or alternative accountant’s report)
- Notes to the accounts stating whether the company has taken advantage of small private company exemptions
- Key figures: turnover, total assets, employee numbers
2. Verify the Size Criteria
Check if the company meets the size tests. If the financial statements are simplified, they may still show summarized turnover and total assets. Employee numbers are sometimes disclosed in the directors’ report (if filed).
📌 Tip: If the statements are heavily abbreviated, you may need to look at prior years’ filings to see if the company has consistently met the criteria.
3. Check the Company’s Status and History
A company must be a private company to qualify. You can confirm this through the Companies Registry search—it will show the company type.
Also, review the company’s filing history. If it suddenly switches from full audited accounts to simplified statements, check whether its size genuinely changed or if it might be restructuring to qualify.
4. Look for Signals of “Threshold Management”
Some companies might artificially stay just below the HKD 100 million thresholds to keep their “small” status. Warning signs include:
- Revenue hovering just below HKD 100 million for multiple years
- Unusual year-end transactions that reduce reported assets
- Use of separate legal entities to split business operations
If you suspect threshold management, it’s a red flag for financial transparency.
5. Understand the Transitional Rules
The Companies Ordinance includes transitional provisions for companies moving between reporting regimes. For example, if a company grows and no longer qualifies as “small,” it must resume full reporting. Schedule 11 of the Ordinance outlines these transitional arrangements—such as how accounts, audits, and directors’ reports are handled during the change.
When reviewing filings, check whether the company has recently changed its reporting approach and whether the transition appears consistent with the rules.
A Practical Example: What to Look for in Filed Documents
Let’s walk through a hypothetical review of “XYZ Trading Limited,” a Hong Kong private company:
- Step 1: Pull the latest annual return from the Companies Registry.
- Step 2: In the financial statements, note the following:
- Turnover: HKD 92 million
- Total assets: HKD 85 million
- No employee disclosure, but a note states: “The company qualifies as a small private company under the Companies Ordinance.”
- The audit report is replaced by a “Report by a Practicing Accountant.”
- Step 3: Check prior years: turnover was HKD 98 million and HKD 97 million—consistently below HKD 100 million.
- Step 4: No obvious signs of threshold manipulation, but the lack of detailed notes means you can’t see breakdowns of debt or off-balance-sheet commitments.
- Conclusion: XYZ likely legitimately qualifies, but you’ll need to request additional financial details directly from the company for a complete due diligence.
When to Dig Deeper
If your risk tolerance is low or the potential exposure is high, consider these additional steps:
- Request internal financial statements – Politely ask the company for internal management accounts or full statutory accounts (if prepared but not filed).
- Conduct a site visit or interview – Assess operational scale and employee count firsthand.
- Check related companies – If the group structure includes multiple entities, assess whether the whole group might exceed thresholds.
- Consult a professional – Engage a local accounting or due diligence firm to perform a deeper analysis.
How ChinaBizInsight Can Help
Verifying a Hong Kong company’s reporting status and uncovering hidden financial risks requires access to reliable documents and local regulatory knowledge. At ChinaBizInsight, we specialize in retrieving official company records from Hong Kong and interpreting them in the context of local laws and exemptions.
Our Hong Kong Company Report service provides you with:
- Official Certificates of Incorporation and Business Registration
- Latest Annual Returns and financial statements (as filed)
- Summary of reporting exemptions claimed
- Analysis of company size and eligibility flags
- Custom due diligence add-ons for deeper risk assessment
We help you move beyond the filed documents to understand what’s really going on—so you can make informed decisions with confidence.
Explore our Hong Kong Company Document Retrieval service to get started.
Conclusion
Hong Kong’s reporting exemptions for small private companies are a legitimate way to reduce administrative burdens—but they also create gaps in public financial information. As an international partner or investor, you must know how to verify a company’s eligibility and recognize when simplified reporting might be hiding risks.
By systematically checking filed documents, understanding the size thresholds, and watching for signs of threshold management, you can avoid the pitfall of incomplete due diligence. And when in doubt, partnering with a professional firm that knows the local landscape can provide the extra assurance you need.
Always remember: in business, what you don’t know can hurt you. Make sure your Hong Kong company checks are thorough, informed, and transparent.