BN(O) passport holder with ILR applying for British passport

Hi

I hope someone could give me some guidance on applying for British passport for me and my family.

I am a British National (Overseas) passport holder from Hong Kong and I got my ILR back in September 2012. My wife is a HK SAR passport holder with discretionary leave to remain until 2015. I have 2 kids both born in UK but due to they were born before I got my ILR, they do not hold British passports, they are HKSAR passport holders. My first child was born in Nov 2009 and he got ILR on his passport on the same date as mine. My second child was born in Aug 2012(i Know - one month earlier then my ILR). She got HKSAR passport with only 6 months visa expiring in July(due to travel to hk after getting the passport).

Here is the question:
1. Should I be applying for British citizen by register(B(OS) B(OTA) form) or naturalisation(AN form)?
2. Should I be using the same route(register or naturalisation) for my first child and apply with my application?
3. Can I register or naturalisation my second child with my application? Or I will have to apply ILR for her first?

any feedbacks will be appreciated.

Thank you