What is a company limited by guarantee?
A company limited by guarantee does not have any share capital, which makes it suitable for non-profit organisations.
The company does not have shareholders but is owned by guarantee members. The liability of the members is limited to the amount they undertake to contribute in case of the company being wound up.
No profit is distributed to the members since any profits earned will be used in furtherance of the non-profit objectives of the company.
Directors of a company limited by guarantee carry the same legal duties, responsibilities and liabilities as directors of other entities. Since they do not receive any dividends, members are involved with the company because of their commitment to the company’s objectives rather than to benefit from it financially.
Advantages of a company limited by guarantee
A company limited by guarantee is a separate legal entity from the members and is responsible for its own debts, as a result, the members can enjoy limited liability and are only liable for the company’s debts up to the amount they have guaranteed to contribute to the company.
Structure of a Hong Kong company limited by guarantee
The basic requirements of a company limited by guarantee include:
- One member, two individual directors and one company secretary
- The member can be a natural person or corporation
- No nationality restriction for the member
- Company secretary can be a Hong Kong resident or company
- Must have a designated representative who is a Hong Kong resident
- Must state the amount guaranteed by each member
- The registered office address must be in Hong Kong
- Must file annual audited financial statements with Companies Registry which is open to public
- Cannot distribute profits
- Must have Articles of association
Documents required for incorporating a company limited by guarantee in Hong Kong
- Certified true copy of
- Passport for non-residents or ID card of Hong Kong residents for each member
- Residential address proof (phone bills or utility bills) of each member
- Certificate of Incorporation and registered office if the member is a corporation
- Certified true copy of
- Passport for non-residents or ID card of Hong Kong residents for each director
- Residential address proof of each director
- Copy of Hong Kong ID card and residential address proof of the company secretary and designated representative
- Duly completed incorporation form
- Activity plan and budget plan for the first 12 months once the company is registered (only if you apply for the charity status under Section 88 of Inland Revenue Ordinance)
Steps for registering a company limited by guarantee
To set up a company limited by guarantee under the Companies Ordinance, you must follow the below procedures:
- A name search must be conducted with the Companies Registry to avoid using a name that is the same or similar to an already registered company.
- Draft Articles of Association stating the objectives of the company
- Prepare and file the NNC1G incorporation form (company not limited by shares) which should be signed by the members and directors of the company.
- File relevant documents, including:
- The appointment of directors and secretary
- The application for a Business Registration Certificate
- Once the application is approved, it may take 4 – 6 weeks for the Companies Registry to issue the Certificate of Incorporation. A Business Registration Certificate will be issued at the same time by the Inland Revenue Department.
Setting up a company limited by guarantee in Hong Kong can usually take from 4 – 6 weeks, but the approval of becoming a charity under Section 88 of the Inland Revenue Ordinance can take up to six months or more.
The incorporation fee that is paid to the Companies Registry is HKD 170 for 25 members or less, HKD 340 for more than 25 members but not exceeding 100 and HKD 20 for every 50 members or less after the first 100 members.
The business registration fee to the IRD is not applicable if the company is exempted from profits tax under section 88 of the Inland Revenue Ordinance
Ongoing obligations of a company limited by guarantee in Hong Kong
Once you have registered your company limited by guarantee in Hong Kong, you are required to follow a set of continuing obligations under the Companies Ordinance which include:
- Keeping records of debenture holders, members, directors and company secretaries
- Maintaining proper account books that are audited annually
- Arranging annual general meetings
- Filing annual returns to the Companies Registry and pay the Inland Revenue Department an annual registration fee to renew the Business Registration of the Company (unless the company is exempt from profits tax under section 88 of the Inland Revenue Ordinance )
- Preparing audited financial statements for the annual general meetings
How to set up a charity in Hong Kong?
If you want to set up a charity in Hong Kong in the form of a company limited by guarantee, you will need to have governing instruments that:
- Forbid allocation of income and property to members
- Specify how assets will be distributed when the company is dissolved
- Demonstrate the company’s objectives are for charitable purpose
- Prohibit members and directors from receiving remuneration
- Keep operating records such as donation receipts
- Specify how the assets are to be distributed upon dissolution of the company (usually to another charity)
If you think a company limited by guarantee is the right entity for you, do not hesitate to get in touch with Acclime to help you register and set up your company. With our years of experience, we can guide you through the process of setting up the company and obtaining charity status (if needed). We can then ensure that your company complies with all rules and regulations in Hong Kong governing your company.