Are you planning to establish a non-profit organisation, club, or charitable body in Hong Kong? Choosing the right legal structure is your most critical first step. For most, a Company Limited by Guarantee (擔保有限公司) is the ideal vehicle, offering legal protection, a professional framework, and a clear path to obtaining tax-exempt charitable status.
Key Takeaways
- A Company Limited by Guarantee is the premier structure for non-profits in Hong Kong, creating a separate legal entity with limited liability for its members.
- It is the standard structure required to apply for Section 88 tax-exempt charitable status from the Inland Revenue Department (IRD).
- The setup requires careful drafting of the Articles of Association to meet the strict legal requirements of both the Companies Ordinance and the IRD.
- Unlike a company limited by shares, it has no shareholders and does not distribute profits. All income must be used to further the company’s non-profit objectives.
This comprehensive guide explains everything you need to know, from incorporation and structural requirements to achieving Section 88 approval and avoiding common pitfalls.
What is a Company Limited by Guarantee?
A Company Limited by Guarantee is a public company that has no share capital. Instead of being owned by shareholders, it is controlled by “guarantee members.” These members agree to contribute a nominal amount (the “guarantee”) in the event the company is wound up. This structure makes it unsuitable for for-profit businesses but perfect for non-profit organisations (NPOs).
The directors carry the same legal duties as in any other company, but their focus is on governance and furthering the company’s mission, not on generating financial returns for owners.
Key Advantages for Non-Profits
Choosing this structure offers significant benefits:
Credibility and Eligibility for Funding
This formal, regulated structure enhances public perception and is often a prerequisite for applying for government grants, public funding, and large-scale donations.
Separate Legal Entity
The company can own property, enter into contracts, obtain loans, hire employees, and sue or be sued in its own name, separate from its members and directors.
Limited Liability for Members
Members’ personal assets are protected. Their liability is strictly limited to the small, pre-agreed guarantee amount, which only becomes payable if the company dissolves.
Perpetual Succession
The company’s existence is continuous and is not affected by changes in its membership or directorship.
Credibility and Eligibility for Funding
This formal, regulated structure enhances public perception and is often a prerequisite for applying for government grants, public funding, and large-scale donations.
Structure of a company limited by guarantee
Every Hong Kong Company Limited by Guarantee must have:
At least one Member: Can be an individual or a corporation, with no restrictions on nationality or residence.
At least two individual Directors: Directors cannot be a corporate body. There are no restrictions on their nationality or residence.
A Company Secretary: Can be an individual or a corporation, but must be a Hong Kong resident or have a registered office in Hong Kong.
A Hong Kong Registered Office Address: A physical address in Hong Kong is required.
Articles of Association: This is the company’s constitutional document, outlining its objectives, governance structure, and rules.
The Incorporation Process
1: Choose a Company Name
Conduct a name search with the Companies Registry to ensure your proposed name is not already in use.
2: Draft the Articles of Association
This is the most crucial document. It must clearly state the company’s non-profit objectives. If you plan to apply for charity status, specific clauses required by the IRD must be included.
3: Prepare and File Incorporation Documents
The following must be submitted to the Companies Registry:
- Form NNC1G (Incorporation Form for a company not limited by shares).
- A copy of the Articles of Association.
- Required Due Diligence Documents:
- For each individual director and member: A certified true copy of their passport (or HKID) and proof of residential address.
- For a corporate member: A certified true copy of its incorporation documents.
- For the Company Secretary: A copy of their HKID/company documents and address.
4: Obtain Certificates
Once approved (typically in 4 – 6 weeks), the Companies Registry will issue the Certificate of Incorporation, and the IRD will issue the Business Registration Certificate.
Required documents
Besides the incorporation form, a few documents are required to attach.
Certified true copies of:
- passports (non-residents) or HKID cards for each member and director
- proof of address for each member and director
- Certificate of Incorporation and registered office if the member is a corporation
For the company secretary: a copy of HKID card and proof of address.
Timeline
Usually it takes around 4-6 weeks to set up a company limited by guarantee in Hong Kong. The approval of becoming a charity can take up to six months or more.
Fees
An incorporation fee has to be paid to the Companies Registry, based on the number of members.
- 25 members or less: HKD 170
- 26-100 members: HKD 340
- Every 50 members or less after the first 100 members: HKD 20
The submission fee depends on the format (electronic vs. hard copy), with lower fees for electronic submissions.
If the company is exempted from profits tax, the business registration fee to the IRD is not applicable.
Section 88 Tax Exemption
To become a tax-exempt charity, you must apply to the IRD for recognition under Section 88 of the Inland Revenue Ordinance.
The Application Process
This involves submitting a formal application along with your company’s documents and, most importantly, a detailed 12-month activity plan and budget. The IRD will rigorously review your company’s objectives and structure. This process can take six months or more.
Common Pitfalls When Applying for Section 88 Status (And How to Avoid Them)
Based on our experience, many applications are delayed or rejected due to avoidable errors. Here are the key pitfalls:
Pitfall 1: Vague or Commercial-Sounding Objectives.
Your Articles of Association must state your objectives with precision. Ambiguous language like “promoting general good” is often rejected.
Expert Tip: We help clients draft precise objectives that align with the IRD’s four recognized charitable purposes (relief of poverty, advancement of education, advancement of religion, and other purposes of a charitable nature beneficial to the community)
Pitfall 2: Improper Remuneration Clauses.
The articles must strictly prohibit distributing profits to members and must clearly define the terms under which reasonable payment can be made for services rendered. A poorly worded clause is a major red flag for the IRD.
Pitfall 3: A Weak or Unconvincing Activity Plan.
Your application must be supported by a detailed plan. A generic plan will not suffice.
Expert Tip: We guide clients in creating a plan that demonstrates genuine, tangible charitable activities and realistic financial projections, which is crucial for building credibility with the IRD.
Obligations to maintain the company
Once a company limited by guarantee is incorporated, there are certain obligations that need to be met under the Companies Ordinance, which include:
- Maintaining records of members, directors, company secretaries and debenture holders and reporting any changes to the Companies Registry
- Keeping proper account books and records, that are audited annually
- Filing annual returns
- Having annual general meetings; the first one has to be held within nine months after the company’s first anniversary (incorporation date)
“Company Limited by Guarantee” vs. “Company Limited by Shares“
These are the two most common company types in Hong Kong. They differ primarily in their purpose, ownership structure, and how they handle profits. Here is a quick comparison:
| Company Limited by Guarantee | Company Limited by Shares | |
| Primary Purpose | Non-profit. Established to achieve a specific mission, such as charity, education, religion, or a social club. | For-profit. Established to conduct business and generate profit for its shareholders. |
| Ownership | Comprised of Members who do not hold any ownership shares in the company. | Owned by Shareholders who hold shares, representing a portion of ownership. |
| Capital Structure | No share capital. | Has share capital, formed by the shares issued to its shareholders. |
| Profit Distribution | Profits cannot be distributed to members. All surplus funds must be reinvested to further the company’s objectives. | Profits can be distributed to shareholders in the form of dividends. |
| Liability | Members’ liability is limited to a nominal “guarantee amount” (a small sum committed in the articles), payable only if the company is wound up. | Shareholders’ liability is generally limited to the unpaid amount on their shares, if any. |
| Common Uses | Charities, schools, professional associations, sports clubs, and other non-profit organisations. | Virtually all commercial businesses, such as trading, retail, technology, and service companies. |
HKWJ can help
At the HKWJ Group we can help in registering and setting up your company limited by guarantee and, if needed, obtaining charity status.
In addition, we provide company secretary services, cloud accounting, or corporate audit to keep you compliant with the legal and tax obligations.
Feel free to get in touch with us via the form below for more information about setting up your company limited by guarantee.
