What Is Company Limited By Guarantee In Hong Kong?

Choosing the right legal structure is a critical first step for charities, NGOs, and non-profit organisations in Hong Kong, as it affects governance, funding eligibility, compliance obligations, and liability exposure. Selecting the wrong entity type can restrict growth, undermine donor confidence, or leave members and directors exposed to unnecessary legal risks. For organisations that operate on a non-profit basis and do not issue shares, a Company Limited by Guarantee (CLG) is often the most appropriate structure under Hong Kong law. Designed for mission-driven organisations, a CLG offers limited liability, clear governance, and strong legal recognition while prohibiting profit distribution. In this guide, we explain what a Company Limited by Guarantee is, who it is suitable for, how it works in practice, and the key legal and compliance considerations you need to understand before setting one up in Hong Kong.

What Is a Company Limited by Guarantee?

Under the Companies Ordinance (Cap. 622), a Company Limited by Guarantee (CLG) is a Hong Kong–incorporated company that does not have share capital. Unlike a company limited by shares, it has no shareholders and does not issue shares. Instead, it is formed by members, also known as guarantors, who agree to contribute a fixed amount to the company’s assets if it is wound up.

Each member’s financial exposure is limited to the guarantee amount stated in the Articles of Association. This amount is often nominal, such as HKD 1, and is only payable if the company is dissolved. As a result, members benefit from limited liability, meaning their personal assets are protected beyond the amount they have agreed to guarantee.

A Company Limited by Guarantee is mostly designed for non-profit purposes. Any surplus or profits generated by the company must be reinvested to further its stated objectives rather than distributed to members as dividends. Directors remain subject to the same statutory and fiduciary duties as directors of other Hong Kong companies, ensuring proper governance and accountability.

A Company Limited by Guarantee (CLG) has a separate legal personality. Once incorporated, it exists as a legal entity distinct from its members and directors. It can own property, enter into contracts, and take legal action in its own name, providing a stable and credible structure for charities, NGOs, and other non-profit organisations operating in Hong Kong.

How a Company Limited by Guarantee Operates

A Company Limited by Guarantee operates on a member-based governance structure rather than shareholder ownership. The members, also known as guarantors, do not hold shares or economic interests in the company. Instead, they support the organisation’s objectives and exercise control through voting rights set out in the Articles of Association, such as appointing or removing directors and approving key governance matters.

From a financial perspective, a CLG must operate strictly on a non-profit basis. Any surplus generated from activities, donations, or funding must be reinvested into the organisation to advance its stated objects. The distribution of profits or assets to members is prohibited. In practice, the Articles of Association typically include express clauses preventing dividend payments or other forms of benefit to members. For organisations seeking charity status under Section 88 of the Inland Revenue Ordinance, these restrictions are mandatory and closely reviewed by the Inland Revenue Department.

Directors are responsible for managing the day-to-day affairs of the company and ensuring compliance with Hong Kong law. They owe the same statutory and fiduciary duties as directors of companies limited by shares. These include acting in good faith, exercising reasonable care and skill, avoiding conflicts of interest, and using company assets solely for proper purposes. Even though a CLG is non-profit in nature, directors remain legally accountable for governance failures, financial mismanagement, and regulatory breaches.

This operating model ensures that a Company Limited by Guarantee remains mission-focused, transparent, and legally robust. It provides a clear framework for accountability while allowing charities, NGOs, and non-profit organisations to pursue long-term objectives with confidence and credibility in Hong Kong.

Who Should Set Up a Company Limited by Guarantee?

A Company Limited by Guarantee (CLG) is designed for organisations that operate for a purpose rather than profit. Below are the common use cases, separated for clarity.

1. Charities and Foundations

Charities and foundations commonly adopt the Company Limited by Guarantee structure in Hong Kong. It provides a recognised non-profit framework and is generally expected when applying for tax exemption under the Inland Revenue Ordinance. This structure also strengthens credibility with donors, grant providers, and regulators.

2. NGOs and Advocacy Organisations

NGOs and advocacy groups benefit from the Company Limited by Guarantee’s legal status. It allows the organisation to sign contracts, receive funding, and operate independently while ensuring that income is applied solely to its stated mission.

3. Schools, Educational, and Cultural Institutions

Schools, educational bodies, and cultural institutions such as arts and research organisations often use a Company Limited by Guarantee. The structure supports long-term governance, accountability, and continuity, which are essential for institutions that rely on public trust and external funding.

4. Associations, Clubs, and Professional Bodies

Sports clubs, trade associations, and professional bodies frequently choose the Company Limited by Guarantee model. It enables member-based organisations to manage assets, run activities, and reinvest any surplus into achieving their objectives rather than distributing profits.

5. When a Company Limited by Guarantee Is Not Suitable

A Company Limited by Guarantee is not appropriate for businesses that intend to distribute profits or raise capital through shares. It may also be unnecessarily complex for small, informal groups with limited activities and no need for a separate legal entity.

6. Company Limited by Guarantee vs Informal Associations

Unlike informal associations, a Company Limited by Guarantee is a separate legal entity. It can own property, enter into contracts, and limit members’ liability to the amount they guarantee. Informal associations lack these protections, which can expose members to personal liability and restrict the organisation’s ability to grow or secure funding.

Key Advantages of a Company Limited by Guarantee

A Company Limited by Guarantee offers a structured and trusted legal framework for non-profit and purpose-driven organisations in Hong Kong. The advantages below explain why this structure is widely adopted by charities, NGOs, and member-based bodies.

1. Limited Liability Protection

One of the main benefits of a Company Limited by Guarantee is limited liability. Members are only responsible for the amount they agree to guarantee, which is typically a nominal sum such as HKD 1. This protection ensures that members’ personal assets are not exposed to the company’s debts or liabilities beyond the guaranteed amount.

2. Separate Legal Personality

A CLG is a separate legal entity distinct from its members and directors. This allows the company to own property, enter into contracts, borrow funds, and take legal action in its own name. As a result, the organisation can operate independently and professionally, without relying on individuals to act personally on its behalf.

3. Long-Term Stability and Perpetual Succession

Companies limited by guarantee benefit from perpetual succession. The organisation continues to exist even if founders, members, or directors change over time. This stability is especially important for long-term projects, charitable programmes, and institutions that require continuity and structured governance.

4. Public Credibility and Donor Confidence

A CLG is a recognised corporate form under the Companies Ordinance (Cap. 622). This legal status enhances public trust and credibility with donors, grant bodies, banks, and regulators. For charities and non-profit organisations, this credibility is often essential when applying for funding, receiving donations, or partnering with government and institutional stakeholders.

5. Tax exemption under Section 88 (subject to IRD approval)

A Company Limited by Guarantee may apply for profits tax exemption under Section 88 of the Inland Revenue Ordinance (Cap. 112) if it meets the relevant conditions. These include being established exclusively for charitable purposes and applying its income solely towards those purposes. While approval is not automatic, successful Section 88 recognition can allow more resources to be directed toward the organisation’s mission rather than tax obligations.

Company Limited by Guarantee vs Company Limited by Shares

Choosing between a Company Limited by Guarantee and a Company Limited by Shares depends on your organisation’s purpose, funding model, and long-term goals. While both are incorporated under the Companies Ordinance (Cap. 622), they serve very different functions in practice.

Purpose and Objectives

A Company Limited by Shares is designed for commercial activities. Its primary objective is to generate profits for shareholders.
In contrast, a Company Limited by Guarantee is intended for non-profit or purpose-driven organisations. Its focus is on advancing a mission, such as charitable, educational, cultural, or professional objectives, rather than distributing profits.

Ownership and Liability

In a company limited by shares, ownership rests with shareholders who hold shares in the company. Their liability is limited to any unpaid amount on their shares.
A company limited by guarantee has no shareholders or share capital. Instead, it has members who act as guarantors. Their liability is capped at a fixed guaranteed amount, often as low as HKD 1, payable only if the company is wound up.

Funding Methods

Companies limited by shares typically raise funds through equity subscriptions, retained profits, or external investment. Dividends may be paid when profits are available.
Companies limited by guarantee cannot issue shares or pay dividends. Funding usually comes from grants, donations, membership fees, or sponsorships. Any surplus must be reinvested to support the organisation’s stated objectives.

Governance and Compliance Requirements

Both structures must comply with statutory filing and governance obligations, but there are key differences. A company limited by shares requires at least one natural person as director.

A company limited by guarantee must have at least two natural person directors and cannot appoint corporate directors. It is also required to file audited financial statements with its annual return, reflecting the higher transparency expected of non-profit entities.

Summary Comparison Table

Legal Framework Governing Company Limited by Guarantee in Hong Kong

A Company Limited by Guarantee in Hong Kong operates within a clear legal framework designed to ensure transparency, accountability, and proper governance. Understanding these laws is essential for ongoing compliance and long-term stability.

1. Companies Ordinance (Cap. 622)

The Companies Ordinance (Cap. 622) is the primary legislation governing Companies Limited by Guarantee in Hong Kong. It regulates incorporation, corporate governance, and ongoing statutory obligations.

Under this ordinance, a CLG must comply with requirements on company structure, director appointments, member rights, and the preparation of constitutional documents such as the Articles of Association. It also sets out directors’ statutory duties, including acting in good faith, exercising reasonable care, and avoiding conflicts of interest.

2. Inland Revenue Ordinance (Cap. 112)

The Inland Revenue Ordinance (Cap. 112) governs the tax treatment of Companies Limited by Guarantee. For non-profit organisations, this is particularly relevant when applying for charity recognition under Section 88.

To qualify for potential profits tax exemption, a CLG must be established exclusively for charitable purposes, apply its income solely towards those purposes, and restrict the use of funds outside Hong Kong. The Articles of Association must also prohibit profit distribution to members.

Even where tax exemption applies, proper accounting records and annual filings remain mandatory. Understanding Cap. 112 helps organisations manage their tax position responsibly while avoiding compliance issues with the Inland Revenue Department.

3. Common Law Principles

In addition to statutory legislation, common law principles play an important role in governing Companies Limited by Guarantee. Where legislation does not provide detailed guidance, court decisions and established legal precedents help interpret directors’ duties, governance standards, and member rights.

Common law supports fair decision-making, reinforces fiduciary obligations, and provides legal clarity in complex or disputed situations. Together with statutory rules, it forms a comprehensive legal foundation that ensures CLGs operate responsibly and in line with their stated objectives.

Structure of a Company Limited by Guarantee

A Company Limited by Guarantee in Hong Kong has a clearly defined structure under the Companies Ordinance. Each role serves a specific compliance and governance function, ensuring accountability and operational clarity.

1. Members (Guarantors)

A Company Limited by Guarantee must have at least one member. Members can be individuals or corporate entities, with no restrictions on nationality or residency.

Unlike shareholders, members do not own shares. Instead, they act as guarantors and agree to contribute a fixed amount if the company is wound up. This guarantee amount is stated in the Articles of Association and is typically nominal, such as HKD 1.

Members have rights to participate in general meetings, vote on key matters, and appoint proxies where permitted by the Articles. Their financial liability is limited strictly to the guaranteed amount and only arises upon winding up.

2. Directors

A minimum of two directors is required for a Company Limited by Guarantee in Hong Kong. All directors must be natural persons, as corporate directors are not permitted. There are no nationality or residency restrictions.

Directors are responsible for managing the company and ensuring it operates in line with its stated objectives. They owe statutory and fiduciary duties under Hong Kong law. These include acting in good faith, exercising reasonable care and skill, avoiding conflicts of interest, and properly disclosing any personal interests in company transactions.

Failure to meet these duties may result in personal liability, regulatory action, or disqualification.

3. Company Secretary and Designated Representative

Every Company Limited by Guarantee must appoint a company secretary. This is a statutory requirement under the Companies Ordinance.

The company secretary must be either a Hong Kong resident individual or a licensed corporate service provider in Hong Kong. In addition, the company must appoint a designated representative who is a Hong Kong resident. This person acts as the primary contact for law enforcement authorities in relation to the company’s significant controllers register. The company secretary plays a key role in maintaining statutory records, preparing filings, and ensuring ongoing compliance.

4. Registered Office

A Company Limited by Guarantee must maintain a registered office address in Hong Kong at all times. This address is used for official correspondence from the Companies Registry and other government authorities.

Maintaining an accurate and accessible registered office address is essential to avoid missed notices, penalties, or compliance issues.

5. Articles of Association

The Articles of Association are mandatory for all Companies Limited by Guarantee and form the company’s core constitutional document.

For CLGs, the Articles must include specific clauses. These cover the company’s objectives, the guarantee amount for each member, rules on the application of income, and provisions for winding up. The guarantee amount declaration clearly states the maximum liability of each member.

Where the CLG intends to apply for charity status, additional clauses are required. These typically prohibit profit distribution to members, restrict director remuneration, and require any surplus on dissolution to be transferred to another organisation with similar charitable objectives.

Pre-Incorporation Considerations

Proper planning before incorporation helps avoid delays, rework, and future compliance risks. For a Company Limited by Guarantee in Hong Kong, the following points should be addressed before filing with the Companies Registry.

Company Name Restrictions and Search

The proposed company name must be unique and not identical or confusingly similar to an existing registered name. A name search should be conducted through the Companies Registry before preparation of incorporation documents.

Names that are misleading, suggest government affiliation, or imply regulated activities may be rejected. Where sensitive words are used, prior approval may be required.

Defining Non-Profit Objectives

The company’s objectives must be clearly defined and set out in the Articles of Association. These objectives explain why the organisation exists and how its activities serve non-profit purposes.

Well-drafted objectives are critical for governance, regulatory compliance, and future funding. They are also essential if the company intends to apply for charity status under Section 88 of the Inland Revenue Ordinance.

Identifying Members and Directors

At least one member and two individual directors must be identified before incorporation. Members can be individuals or corporate entities, with no nationality or residency restrictions.

Directors must be natural persons and are responsible for managing the company and ensuring compliance with statutory duties. Early confirmation of these roles helps streamline document preparation and consent filings.

Determining the Guarantee Amount

Each member must agree to a fixed guarantee amount, which becomes payable only if the company is wound up. This amount is stated in the Articles of Association and is commonly set at a nominal sum, such as HKD 1.

The guarantee amount defines the maximum liability of each member and should be agreed upfront to avoid later amendments.

Planning for Charity Status (If Applicable)

If the organisation intends to apply for tax exemption as a charity under Section 88, this should be planned before incorporation. The Articles of Association must include specific clauses, such as restrictions on profit distribution, limits on director remuneration, and asset transfer provisions on winding up.

Applicants should also be prepared to submit an activity plan and budget for the first 12 months after incorporation. Charity recognition can take several months, so early planning is essential for organisations relying on donations or grants.

Documents Required to Incorporate a Company Limited by Guarantee

Incorporating a Company Limited by Guarantee in Hong Kong requires careful preparation of statutory documents. Submitting complete and accurate information helps reduce processing delays, as CLGs are subject to closer review by the Companies Registry.

Articles of Association

The Articles of Association are mandatory for all CLGs. They set out the company’s objectives, governance rules, and operational framework.

For a CLG, the Articles must state the guarantee amount for each member, rules on the application of income, and asset distribution on winding up. Where charity status is intended, additional clauses are required to prohibit profit distribution and restrict the use of funds.

Incorporation Form NNC1G

Form NNC1G is the prescribed incorporation form for companies not limited by shares. It includes key information on the company name, registered office, members, directors, company secretary, and guarantee amount.

Directors’ consents can be included in this form or filed separately using Form NNC3 within 15 days after incorporation.

Identification and Address Proof for Members

For each member, the following documents are required:

• Certified true copy of a passport for non-residents or Hong Kong Identity Card for residents
  
• Proof of residential address, such as a utility bill or bank statement
  
• If the member is a corporation, a copy of its Certificate of Incorporation and registered office address
  

These documents support identity verification and statutory record-keeping.

Identification and Address Proof for Directors

Each director must provide:

• Certified true copy of a passport or Hong Kong Identity Card
  
• Proof of residential address
  

Only natural persons may act as directors of a CLG, and accurate documentation is essential for compliance under the Companies Ordinance.

Company Secretary Documentation

The company secretary must be either a Hong Kong resident individual or a licensed corporate service provider. Required documents include:

• Copy of the Hong Kong Identity Card
  
• Proof of residential address
  
• Identification details of the designated representative, who must be a Hong Kong resident
  

Additional Documents for Section 88 Charity Application

Where the CLG intends to apply for charity recognition under Section 88 of the Inland Revenue Ordinance, additional documentation is required. This typically includes an activity plan and budget for the first 12 months after incorporation.

These documents help the Inland Revenue Department assess whether the organisation is established exclusively for charitable purposes and meets the conditions for potential tax exemption.

Read: How To Register A New Company In Hong Kong 2025 Guide

Step-by-Step Process to Register a Company Limited by Guarantee

Registering a Company Limited by Guarantee in Hong Kong involves several structured steps under the Companies Ordinance. Careful preparation at each stage helps reduce delays, as CLGs are subject to more detailed review than companies limited by shares.

1. Name Search and Approval

The process begins with a company name search at the Companies Registry. The proposed name must not be identical or confusingly similar to an existing registered name.

Names that suggest government affiliation, regulated activities, or misleading purposes may be rejected. Completing this step early helps avoid application resubmissions and delays.

2. Drafting the Articles of Association

The Articles of Association define how the CLG operates and are a core incorporation document. They must state the company’s non-profit objectives, the guarantee amount for each member, and rules governing the use of income and assets.

For organisations planning to apply for charity status, the Articles must also prohibit profit distribution, restrict director remuneration, and specify how assets will be transferred on winding up.

3. Filing Incorporation Documents

Once the name and Articles are finalised, the incorporation documents are filed with the Companies Registry. These include Form NNC1G, the Articles of Association, and supporting identification documents for members, directors, and the company secretary.

Directors’ consents are included in Form NNC1G or filed separately within the prescribed timeframe. Government filing fees must be paid at the time of submission.

4. Business Registration Application

The application for a Business Registration Certificate is submitted together with the incorporation documents. This is done through Form IRBR1 and processed by the Inland Revenue Department.

For CLGs that later obtain charity status under Section 88, the business registration fee may be exempt, subject to approval.

5. Certificate of Incorporation

Upon approval, the Companies Registry issues the Certificate of Incorporation, which legally confirms the company’s existence in Hong Kong. This step typically takes four to six weeks, depending on the complexity of the application.

The Business Registration Certificate is issued at the same time, allowing the organisation to commence lawful operations in accordance with its stated objectives.

Incorporation Timeline and Processing Time

Incorporating a Company Limited by Guarantee in Hong Kong generally takes longer than setting up a private company limited by shares. Proper planning is important, especially for organisations working toward funding deadlines or charity recognition.

Typical Company Limited by Guarantee Incorporation Timeframe

In most cases, the incorporation of a Company Limited by Guarantee takes around four to six weeks from the date of submission. This timeframe includes the review of the incorporation documents by the Companies Registry and the issuance of both the Certificate of Incorporation and the Business Registration Certificate.

Unlike share companies, CLGs do not benefit from a one-hour online incorporation pledge.

Why Company Limited by Guarantee Take Longer Than Share Companies

CLGs are subject to closer scrutiny because they are commonly used for non-profit and charitable purposes. The Companies Registry reviews the proposed objects, guarantee provisions, and governance structure in more detail to ensure compliance with the Companies Ordinance.

Applications involving public interest elements or charitable objectives may require additional clarification before approval is granted.

Factors That May Delay Approval

Several factors can extend the processing time. These include unclear or overly broad object clauses in the Articles of Association, incomplete or inconsistent information in Form NNC1G, and missing supporting documents.

Applications that use sensitive or restricted words in the company name may also trigger additional review by the Companies Registry.

Additional Timeline for Charity Status Approval

If the CLG intends to apply for tax exemption as a charity under Section 88 of the Inland Revenue Ordinance, a separate application must be submitted after incorporation. This approval process can take six months or longer, depending on the complexity of the organisation’s activities and the completeness of its supporting documents.

During this period, the Inland Revenue Department may request further information before granting charity recognition.

Government Fees and Registration Costs

Understanding government fees helps founders budget accurately when setting up a Company Limited by Guarantee in Hong Kong. Costs are primarily driven by the number of members and whether documents are filed electronically or in hard copy.

Companies Registry Incorporation Fees

The Companies Registry charges a one-off incorporation fee when a CLG is registered. The fee varies depending on the filing method and total number of members.

For e-filing, the fees are:

• HKD 155 for 25 members or fewer
  
• HKD 305 for 26 to 100 members
  
• HKD 305 plus HKD 18 for each additional 50 members or fewer beyond the first 100
  
• Maximum fee capped at HKD 925
  

For hard copy filing, the fees are:

• HKD 170 for 25 members or fewer
  
• HKD 340 for 26 to 100 members
  
• HKD 340 plus HKD 20 for each additional 50 members or fewer beyond the first 100
  
• Maximum fee capped at HKD 1,025
  

Electronic filing is typically more cost-effective and is commonly used to streamline incorporation.

Member-Based Fee Structure

Unlike companies limited by shares, CLG incorporation fees are calculated based on the number of members rather than share capital. Organisations with a larger membership base should factor in higher registration fees, especially if the member count exceeds 100.

Planning the membership structure in advance helps avoid unexpected cost increases during incorporation.

Business Registration Certificate Fees

A Business Registration Certificate must be applied for together with incorporation. For 2025/26, Business Registration fees are: 

• 1-year HKD 2,200 (levy HKD 0)
• 3-year HKD 6,020 (includes HKD 300 levy)

Fees change periodically—confirm the latest IRD table.

Fee Exemption Considerations for Approved Charities

If a CLG is approved as a tax-exempt charity under Section 88 of the Inland Revenue Ordinance, the business registration fee may be waived or refunded, subject to IRD confirmation.

It is important to note that this exemption only applies after charity status is granted. The incorporation and business registration fees are generally paid upfront, even if a Section 88 application is planned.

Read: How To Set Up a Company in Hong Kong

Ongoing Compliance Obligations for Company Limited by Guarantee

After incorporation, a Company Limited by Guarantee in Hong Kong must meet ongoing statutory and regulatory obligations under the Companies Ordinance. These requirements are more stringent than those for private companies limited by shares and are designed to ensure transparency, accountability, and proper governance.

Annual Returns and Statutory Filings

Every CLG is required to file an Annual Return with the Companies Registry to confirm that its corporate information remains accurate and up to date.

The Annual Return (Form NAR1) must be filed within 42 days after the return date. For CLGs, the filing must be accompanied by:

• Audited financial statements
  
• Directors’ report
  
• Auditors’ report
  

In addition, any changes to directors, company secretary, registered office address, or the number of members must be reported to the Companies Registry within the prescribed timeframe. Late or inaccurate filings may result in penalties and affect the company’s compliance status.

Accounting and Audit Requirements

CLGs are subject to mandatory annual audits, regardless of size or activity level, unless the company is formally dormant. The reporting exemption available to certain entities only reduces disclosure requirements. It does not remove the audit obligation.

Key accounting responsibilities include:

• Maintaining proper books of account that accurately reflect income, expenditure, assets, and liabilities
  
• Preparing audited financial statements each financial year
  
• Retaining accounting records for at least seven years
  

Strong financial record-keeping is especially important for non-profit and charitable organisations, as financial transparency is closely scrutinised by regulators and donors.

Annual General Meetings (AGMs)

A CLG must hold an Annual General Meeting within nine months after the end of its financial year, unless the requirement is lawfully dispensed with under Companies Ordinance sections 612 to 613.

At the AGM, members typically:

• Receive and consider audited financial statements
  
• Review the directors’ and auditors’ reports
  
• Address governance and compliance matters
  

Failure to hold an AGM within the statutory deadline may lead to compliance issues and enforcement action.

Business Registration Renewal

In addition to Companies Registry filings, a CLG must renew its Business Registration Certificate with the Inland Revenue Department on a yearly or triennial basis, depending on the certificate selected.

Renewal fees must be paid on time to avoid:

• Late payment penalties
  
• Surcharges imposed by the IRD
  
• Potential enforcement actions
  

CLGs that are approved as tax-exempt charities under Section 88 of the Inland Revenue Ordinance may be exempt from paying business registration fees, subject to IRD confirmation. However, renewal obligations still apply, even where a fee exemption is granted.

Meeting these ongoing compliance obligations is essential for maintaining good standing, protecting directors from personal liability, and ensuring the long-term credibility of a Company Limited by Guarantee in Hong Kong.

Registering a Company Limited by Guarantee as a Charity

Registering a Company Limited by Guarantee as a charity in Hong Kong is a separate process from incorporation. Charity status is not automatic and requires formal approval from the Inland Revenue Department under the Inland Revenue Ordinance.

Charity Status Is Not Automatic

A CLG is not treated as a charity simply because it is non-profit in nature. Until the Inland Revenue Department grants recognition, the company remains subject to normal tax and compliance obligations. An application for charitable status must be made separately after incorporation.

Definition of a Charity Under Hong Kong Tax Law

Under Hong Kong tax law, a charity must be established exclusively for charitable purposes. These generally fall within recognised categories such as:

• Relief of poverty
  
• Advancement of education
  
• Advancement of religion
  
• Other purposes of a public character that benefit the community

The Inland Revenue Department assesses the stated objects and actual activities of the CLG to determine whether they meet this definition.

Section 88 Qualification Requirements

To qualify for tax exemption under Section 88 of the Inland Revenue Ordinance, a CLG must demonstrate that:

• It is established solely for charitable purposes
  
• Its income and assets are applied only towards those purposes
  
• Profits are not expended substantially outside Hong Kong
  
• Any trading activities directly further the charitable objects or are mainly carried out by beneficiaries

Meeting these conditions is essential for approval and ongoing tax-exempt status.

Mandatory Governing Instrument Clauses

The Articles of Association must include specific clauses that align with Inland Revenue Department requirements. These typically include provisions that:

• Prohibit distribution of income or assets to members
  
• Restrict remuneration of directors and members, except in limited and reasonable circumstances
  
• Require proper maintenance of financial and operational records

Applications are often delayed or rejected if these clauses are missing or improperly drafted.

Restrictions on Trading and Use of Income

Charitable CLGs may only engage in trading activities if those activities directly support their charitable objectives. All income must be applied to the approved purposes, and surplus funds cannot be distributed to members or directors.

Careful structuring of activities is important to avoid breaching Section 88 conditions.

Asset Distribution on Winding Up

The governing instrument must clearly state how assets will be distributed upon dissolution. Assets must be transferred to:

• Another recognised charity, or
  
• A body with similar charitable objectives

Distribution to members or private individuals is strictly prohibited.

IRD Review and Approval Timeline

Section 88 approval often takes several months and depends on activity complexity and document completeness. The IRD may request additional information during review.

During the review period, the IRD may request additional documents or clarifications. Professional guidance can help ensure that the application is complete, compliant, and aligned with IRD expectations from the outset.

Common Mistakes and Compliance Risks

1. Using incorrect Articles of Association templates

Many CLGs adopt standard templates meant for share companies. This can omit mandatory non-profit clauses, restrict Section 88 eligibility, or trigger Registry queries. Articles should clearly state charitable or non-profit objects, guarantee amounts, and asset distribution on winding up.

2. Assuming automatic charity or tax-exempt status

Incorporation as a CLG does not grant charity status. Section 88 tax exemption requires a separate IRD application and approval. Operating as if exempt before approval can create tax exposure and compliance risk.

3. Underestimating audit and compliance costs

CLGs must prepare audited financial statements annually, even when income is low. Budgeting only for incorporation fees often leads to cash flow strain once audit, filing, and governance costs arise.

4. Weak governance structures

Inadequate board oversight, unclear decision-making authority, or inactive directors increase regulatory and reputational risk. Clear roles, documented policies, and regular meetings support compliance and accountability.

5. Poor separation of members and directors’ roles

Members are not owners and should not manage daily operations unless properly appointed as directors. Blurring these roles can breach the Articles, weaken governance, and complicate audits and regulatory reviews.

Is a Company Limited by Guarantee Right for You?

A Company Limited by Guarantee (CLG) is best suited for organisations with non-profit, social, educational, or charitable objectives rather than commercial profit-making goals. It is a practical option if you do not intend to distribute profits to members and require a structure with limited liability, strong governance, and public credibility. A CLG is commonly used by charities, associations, professional bodies, and clubs. However, if your organisation plans to raise capital through shareholders, pay dividends, or operate primarily for commercial returns, a private company limited by shares may be more appropriate. Given the higher compliance, audit, and governance requirements of a CLG, professional guidance is important to assess suitability and avoid structural or compliance risks at an early stage.

Conclusion

A company limited by guarantee provides a robust legal structure for non-profit and purpose-driven organisations in Hong Kong. It offers limited liability, enhanced credibility, and a clear governance framework, making it suitable for charities and mission-led entities. While incorporation and ongoing compliance are more demanding than for share companies, proper planning, well-drafted Articles of Association, and a clear understanding of regulatory obligations can help organisations operate effectively and remain compliant. With the right preparation, a CLG can support long-term social and charitable objectives in Hong Kong.

How FastLane Group Can Help

FastLane Group supports organisations throughout the full lifecycle of a company limited by guarantee, from incorporation planning to ongoing compliance. Our services include CLG incorporation support, company secretary services, audit arrangement, accounting and bookkeeping, and guidance on charity applications. If you are considering setting up a company limited by guarantee or need support managing compliance. Speak to our team to assess suitability, draft compliant Articles, and manage ongoing filings.