Choosing an entity to meet your needs and business goals may be difficult, but if your goal is to create a legal non-profit entity with member-based ownership, limited liability protection, then a company limited by guarantee is the way to go.
Content Outline
Key Takeaways
Definition of Company Limited by Guarantee
A company limited by guarantee is a non-profit legal structure with no share capital, where members commit a fixed amount if the company winds up, and profits are reinvested into the organization.
Key Benefits
Members enjoy limited liability protection, meaning their personal financial risk is capped at the guaranteed amount, encouraging involvement without fear of significant financial loss.
Registration Process and Timeline
Setting up involves name search, preparing Articles of Association, filing incorporation documents, and typically takes 4–6 weeks for company registration, with charity status potentially taking six months or longer.
Setting Up a Charity
To qualify for charity status, the company must ensure no profits go to members, clearly state charitable objectives, prohibit remuneration to directors, and outline asset distribution upon dissolution.
What Is A Company Limited By Guarantee?
A company limited by guarantee is a legal structure that is usually specifically suitable for non-profit organizations because of its specific features.
The main difference between this kind of structure and others is that it does not issue shares or have share capital. It is owned by guarantee members, who are mostly individuals or other organizations that are in the company’s mission. These members do not own any shares in the company but rather have to pay a fixed amount if the company shut down.
Profits are not given out to members. Instead, they are put back into the organization to support its non-profit goals. Directors of such companies have the same legal duties and responsibilities as those in other companies. They are responsible for the company’s actions. Nevertheless, the members are not in it for the money, they are in it because they believe in the organization’s mission.
Benefits Of A Company Limited By Guarantee
A company limited by guarantee is a legal entity that is independent of its members so it is responsible for its own debts and legal obligations. Thus, the members of such entities can experience the advantage of limited liability.
The private assets of the members are protected from the company’s debts and liabilities due to the limited liability. The members are responsible for the company’s debts only to the extent they have agreed to contribute to the company. This set amount limits their financial liability.
This system ensures the members some degree of financial security which makes it impossible for their personal assets to be threatened beyond the amount they have committed to contribute to the company. It also motivates people and organizations to be involved in the company’s projects and help achieve its goals without worrying too much about the financial risk.
Legal Structure Of Hong Kong Company Limited By Guarantee
Here are the basic requirements of a Hong Kong company limited by guarantee :
- One member, two individual directors, and one company secretary are mandatory.
- The member can either be a person or a corporation.
- There are no nationality restrictions for the members.
- The company secretary can either be a Hong Kong resident or a company.
- A designated representative, who must be a Hong Kong resident, is required.
- Each member must declare the guaranteed amount.
- The registered office address has to be in Hong Kong.
- Annual audited financial statements need to be submitted to the Companies Registry, and accessible to the public.
- Profit distribution is not allowed.
- There must be Articles of Association.
Required Documents To Set Up A Company Limited By Guarantee In Hong Kong
- A certified true copy of
- Passport for non-resident or Hong Kong resident ID card for each member.
- Proof of residential address (phone bills or utility bills) of each member
- Certificate of Incorporation and registered office (if the member is a corporation)
- A certified true copy of
- Passport for non-resident or Hong Kong resident ID card for each director
- Proof of residential address of each director
- Certified true copy of Hong Kong ID card and proof of residential address of the company secretary and designated representative
- A completed incorporation form
- Budget activities plan for the first 12 months as the company starts to register (this should be submitted separately for obtaining the charity status under section 88 of the Inland Revenue Ordinance).
Step-by-Step Guide To Register A Company Limited By Guarantee
The following procedure must be followed to register a company limited by guarantee under the Companies Ordinance:
- The name search with the Companies Registry has to be done to avoid picking up names that are identical or very similar to a registered company.
- Develop Articles of Association, which will define the company’ objectives.
- Prepare the NNC1G form (company not limited by shares) to be filled by the members and directors which should be signed and sent to the company.
- File relevant documents such as:
- Appointments of directors and secretary
- Business Registration Certificate application
- After the application is approved for incorporation, the Companies Registry will require 4 – 6 weeks to issue the Certificate of Incorporation. The Inland Revenue Department (IRD) will issue you with a Business Registration Certificate at the same time of registration of your company.
Registration Timeline
A company limited by guarantee in Hong Kong can usually be set up in a period of 4 – 6 weeks, but getting the charity status under Section 88 of the Inland Revenue Ordinance may take six months or even more.
Registration Fees
The Companies Registry charges HKD 170 for the first 25 members or less, HKD 340 for more than 25 members but not exceeding 100, and HKD 20 for each 50 members or less above the first 100 members.
The business registration fee does not apply when the company enjoys tax exemption on profits tax under section 88 of the Inland Revenue Ordinance.
The Ongoing Compliance Duties Of A Hong Kong Company Limited By Guarantee
You will be required to follow a set of ongoing duties under the Companies Ordinance when you have registered your company limited by guarantee in Hong Kong :
- Keeping records of information of the debenture holders, shareholders, directors, and company secretary
- Keeping accurate accounting records that are audited every year.
- Arranging annual general meetings
- The renewal of the business registration of the company should be done by filing annual returns to the Companies Registry and paying the Inland Revenue Department the annual registration fee (unless the company is exempted from the profits tax under section 88 of the Inland Revenue Ordinance).
- Preparing the financial statements for the annual general meetings, which would be audited.
How Can I Set Up A Charity in Hong Kong?
You will be required to have the following governing instruments if you are setting up a charity in Hong Kong as a company limited by guarantee :
- Restrict allocation of income and property to their members.
- Detail how assets will be divided if the company is terminated.
- Describe the goal of the company is to be charitable.
- Restrict members and directors from getting any remuneration.
- Keep track of records like donation receipts.
- State clearly the way you want the assets to be divided among other charity organizations if the organization is dissolved or goes down.
Conclusion
If you believe a company limited by guarantee is the right corporate structure for your business, do not hesitate to contact us at FastLane as we are ready to help you with the registration and setup of the company. Through the long course of our practice, you will be able to get proper assistance on registration of the company and obtaining charity status. Contact us now for more details!
