Limited by Guarantee
This entity is typically incorporated for clubs and non-profit organizations that need a legal personality.
This entity is typically incorporated for clubs and non-profit organizations that need a legal personality. Moreover, this entity comprises members instead of the shareholders, who undertake or guarantee to contribute a predetermined sum to the companies in order to cover its liabilities during the winding up of the company. In order to set up a non-profit organization in Hong Kong, business owners don’t require a share capital.
However, as per the regulations, to register a non-profit organization in Hong Kong, companies need to file the annual returns accompanies with the certified true copies of the relevant financial statements, directors’ reports and auditor’s report in respect of every financial year.
Here are some advantages of registering this type of entity in Hong Kong:
- No Shareholders – The first and foremost benefit is that companies can have guarantors, rather than having shareholders. Ultimately, making this fitting for the voluntary kind of organizations. These guarantees will donate a fixed amount of money that you can use for your company’s debts in case of insolvency.
- Limited Liability – The members of this company enjoy limited liability and maintain democratic control all over the matters.
- Separate & Clear Legal Entity – The third advantage is that limited by guarantee is considered as a precise and separate legal entity. In short, this company is not joint with the members; organizations can employ people, hold property, and enter into leases and other contracts with its own name. Moreover, while operating limited by guarantee, directors can be changed without producing any effects on the organization, and its activities. The reason is since the company uses its name everywhere and not the director’s name.
- Stable Structure – This business entity is entitled as the much more ‘stable’ structure than a voluntary association by the funding bodies and public agencies.
Even though this type of business has some good points, they do have some drawbacks that have been shared below in brief:
- Profits – The profits gained in the company can’t be distributed and working capital might be limited.
- Standard Ongoing Requirements – If a business owner wants to have any transformations in the registered office, company secretary, or even directors, then he needs to notify the Companies Registry. Same in the came of annual returns, and annual accounts have to be filed.
- Time-Consuming Registration Procedures – In order to set up limited by guarantee, and apply to be a charity after formation, you need to follow formal registration procedures in Hong Kong. And these registration processes are quite complicated and time-consuming.
- Expensive Setup – And last but not least, limited by guarantee requires much higher costs as compared to typical limited company. What’s more, the annual prices are also higher, especially in the case a formal audit is needed.
How to set up a company limited by guarantee?
Since for setting up a company limited by guarantee, you must have 1 founder member, a company secretary, at least 2 natural person directors, and a registered office address.
In fact, all company directors must not be corporate. Members meanwhile can be either corporate or individual. While there is no restriction on the nationality and resident status of either directors nor shareholders.
Setting up a limited by guarantee (as non profit organization) in Hong Kong, usually takes minimum one month to be officially incorporated.
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In order to incorporate your non-profit organization in Hong Kong, you need to pay just $1019 USD for the process. We assure you to provide you with the very best or world-class services that will not only make you stand out but will take you and your business to new heights.
Note: In order to register a non-profit organization in Hong Kong, the word “Limited” is unavoidable to put as part of the name. However, you might apply for an exemption of “Limited” not showing as part of the name after incorporated.
Moreover, let’s say in future if you want to apply your “Limited by Guarantee” Company as a Charity organization, then you will need to apply with Inland Revenue Department, and IRD will review individually (will not base on the approval of Companies Registry).
How do you set up a Charity in Hong Kong?
If you want to set a charity in Hong Kong, then you can opt for various ways. As above mentioned to register a company limited by guarantee (non-profit organization) in Hong Kong, in that case, you need to consider the governing instrument. A charity must have a governing instrument that:
- Prohibits distribution of its income and property to its members;
- Specifies how assets should be dealt with upon dissolution (usually donated to other charities); and
- Clearly indicates its objectives;
- Prohibits members of its governing body such as directors, trustees, etc. from receiving remuneration;
- Requires the keeping of sufficient and proper records operating records (e.g., donation receipts, proper accounting, etc.)
For applying to become charity, you need to obtain the help of professionals on documents preparation. But still, the Companies Registry (CR) and Inland Revenue Department (IRD) will make decisions independently.
How to obtain Charitable Status, i.e., Tax Exemption?
Under section 88 of the Inland Revenue Ordinance (Cap 112), the charity can be entitled to tax exemption. However, only charities under the jurisdiction of Hong Kong courts qualify for exemption.
From moving forward, you should know that not all limited by guarantee, non-profit-making organisation or voluntary are equivalent to charity, no matter how worthy their causes would be. Moreover, as per the Inland Revenue Ordinance, there is no provision which exempts a “voluntary” or “non-profit-making organisation” from tax.
The tax exemption will only be given to charities which are established in Hong Kong or Hong Kong establishment of overseas charities such as those deemed to be established in Hong Kong under section 4 of the Societies Ordinance or registered under Part XI of the Companies Ordinance (Cap 32, Old CO) or under Part 16 of the Companies Ordinance (Cap 622, New CO) .
They also have to prepare and submit supporting documents of tax exemption with IRD . this process may take a lot of time.