A company limited by guarantee (CLG) in Hong Kong is suitable for charitable activities and organizations aiming to promote art, science, sports, culture, religion, education, and similar objectives.
Companies limited by shares can distribute profits as dividends and raise funds through share sales.
CLG must have at least one member (guarantor), two directors, a company secretary, and a registered address in Hong Kong.
It maintains records of members, directors, and financial accounts and holds annual general meetings, files annual returns, and reports changes to the Companies Registry.
A company limited by guarantee (CLG) in Hong Kong is the business entity of choice if you want to set up a non-profit organization or a charity.
What Is a Company Limited by Guarantee?
It is a company without a share capital or shareholders. This means no individuals own portions of the company, and no investment is divided into shares.
Instead, it has members, known as guarantors, who join and support the organization's goals. Their financial responsibility is limited, or limited liability, to the amount they agree to contribute if the company is being wound up (dissolved). Moreover, a CLG is a separate legal entity from its members.
What Is a Company Limited by Guarantee Suitable For?
A company limited by guarantee is the right vehicle to engage in non-profit or charitable activities.
This covers companies that have the objective of promoting art, science, sports, culture, religion, education, research, or other similar objects.
All of the income and properties of a company limited by guarantee are to be applied solely towards the promotion of its object.
A company limited by guarantee can also be used as a subsidiary company set up to carry out the Corporate Social Responsibility obligations of a parent company.
What Is the Difference Between a Company Limited by Guarantee and a Company Limited by Shares?
The principal difference between companies limited by guarantee and those limited by shares is that the former does not have a share capital while the latter does.
Another difference between both entities is that profits made cannot be distributed to the members in a company limited by guarantee. On the contrary, profits in the form of dividends are issued regularly to members of a company limited by shares.
Also, upon the winding of a company limited by shares, its assets are normally distributed to its shareholders. It is not the case for a company limited by guarantee.
In summary, private companies limited by shares are suitable for for-profit enterprises that aim to raise funds through the sale of shares and compensate shareholders with dividends. Meanwhile, companies limited by guarantee are appropriate for non-profit entities and social enterprises prioritizing the reinvestment of profits towards their mission.
What Are the Advantages of Setting Up a Company Limited by Guarantee In Hong Kong?
A company limited by guarantee has a separate legal identity from its members. As such, it can sue or be sued own property, obtain loans, enter into contracts, and more in its own name.
It also enjoys perpetual succession meaning that changes in its members or directors will not affect its existence.
Finally, the liability of members of a company limited by guarantee is limited only to the amount they have undertaken to pay. This liability will only arise when the company is wound up.
What Laws Govern a Company Limited by Guarantee In Hong Kong?
The principal laws which have an effect on the creation, existence, control, management, and dissolution of a company limited by guarantee are the Companies Ordinance (Cap. 622), the Inland Revenue Ordinance (Cap. 112), and common law.
What Is the Structure of a Company Limited by Guarantee?
A company limited by guarantee must have at least one member.
Its member(s) can be natural persons or companies.
There are no restrictions on the nationality or residence of the members.
At any point when the company's membership is increased, the company is required to notify the Companies Registry of this change. Members of the company may appoint proxies.
Directors
A company limited by guarantee must have at least two Directors at any given time.
A company cannot be appointed a director of a company limited by guarantee. There are no restrictions on the nationality or residence of the directors.
The directors of a company limited by guarantee in Hong Kong are bound by the general director's duties applicable to any company registered in Hong Kong
Company Secretary
A company limited by guarantee must have a company secretary.
Such a company secretary can be a natural person resident in Hong Kong or a company having a registered office or a place of business in Hong Kong.
Registered Address
A limited liability company in Hong Kong is required to maintain a registered office address within Hong Kong.
Constitution Documents
A company limited by guarantee must have and be governed by its Articles of Association.
The Articles should notably specify the amount guaranteed by members, the object of the company, how the company assets and income are to be applied in the event of winding up, etc.
How Do You Set Up a Company Limited by Guarantee in Hong Kong?
In setting up a company limited by guarantee in Hong Kong, you may require the services of professionals such as us Air Corporate to initiate and conduct the registration process. Certain documents must be prepared and certain steps are to be followed.
Pre-Registration
Make a name search through the Companies Registry to confirm the availability of your selected name. Nominate at least two directors and identify the members (guarantors) who will become part of the organization.
Documents Needed
To commence the setting up of a company limited by guarantee in Hong Kong, you need:
- Copies of the passport or ID card for each non-resident or resident member respectively plus proof of residential address. In the case of a body corporate, the certificate of incorporation and proof of the registered office address
- Copies of the passport or ID card for each non-resident or resident director respectively plus proof of residential address
- Articles of Association
- Standard incorporation Form NNC1G is available from the Hong Kong Companies Registry.
Registration and Post-Registration Process
1. Submit the NNC1G form, Articles of Association, and all applicable fees to the Companies Registry.
2. Request a Business Registration Certificate confirming the business's legal registration and authorization to operate in Hong Kong.
3. Comply with ongoing filing requirements with the Companies Registry.
The setting up process for a Hong Kong company limited by guarantee is the same as the one applicable to any company incorporated in Hong Kong. It is generally fast and straightforward.
What Are the Obligations of a Company Limited by Guarantee In Hong Kong?
Once a company limited by guarantee is incorporated in Hong Kong, it has to consistently meet up with certain obligations including:
- Maintaining records of members, directors, debenture holders, and company secretaries
- Keeping account books and records to be audited on an annual basis
- Having annual general meetings, the first of which is to be held within nine months after the first anniversary of the company's incorporation
- Filing annual returns and paying relevant fees
- Reporting changes to members, directors, company secretaries, and registered office addresses to the Companies Registry
Is a Company Limited by Guarantee Automatically a Charity?
A company limited by guarantee in Hong Kong is not automatically treated as a charity.
For a company limited by guarantee in Hong Kong to qualify as a charity, it must follow a charitable purpose, such as:
- The relief of poverty
- The advancement of education
- The advancement of religion
- Purposes beneficial to the community
Whether a Hong Kong company limited by guarantee qualifies as a charity is to be determined by the Inland Revenue Department.
What Is the Benefit of a Company Limited by Guarantee Being Recognized as a Charity?
By the provisions of the Inland Revenue Ordinance, a company that is a charity is exempt from taxation and will be deemed to have always been exempted from tax.
Also, donations to such companies can be used to obtain tax relief.
How Is One Recognized as a Charity?
In addition to the requirements stated above for setting up a company limited by guarantee, a charity is required to have a constitution or governing instrument that:
- Specifies its purpose
- Restricts the sharing of the income and assets of the company to its members
- Expresses how the company's assets and income should be applied after the dissolution
- Forbids directors and other persons with powers of control over the company from receiving remuneration
- Makes the keeping of operating records compulsory
How Long Does It Take to Apply for Qualification as a Charity?
After a company limited by guarantee is set up in Hong Kong, the application process to qualify as a charity normally takes 3 to 6 months.
Conclusion
Contact our team of experts if you have questions or need assistance setting up a company limited by guarantee in Hong Kong.
With Air Corporate, focus on your business while we take care of the rest.