A Complete Walkthrough on
HK Non-Profit Company Registration
If you are looking for the right entity to run your non-profit-making project, we have the answer.
Non-Profit or Charity?
“Charity” is not equivalent to “Non-Profit-Making Organization” (including “Non-Governmental Organization (NGO)” and “Voluntary” organizations and trusts) . Therefore, not all “Non-Profit-Making organizations” are “Charity” but a “Charity” must be “Non-Profit Making”.
Regardless the purpose of “non-profit making”, a qualified “Charity” organization is a specific form of organization which must be registered in Welfare Department of Hong Kong and list in “Charitable Donations and Tax-Exempt Charities” of Inland Revenue Department.
Inland Revenue Department provides tax exemption to only qualified “Charity” organization but no power to exempt a “voluntary” or “non-profit-making” organization.
A charity must be established for public benefit and for purposes which are exclusively charitable according to law. Charitable purposes are classified into four areas:
- relief of poverty;
- advancement of education;
- advancement of religion; and
- other purposes of a charitable nature beneficial to the Hong Kong community
Each case must be considered on its own merit. It is not possible to lay down any precise definition of what constitutes a sufficient section of the public.
Charity should have a governing instrument. It is essential that a charity is established by a written governing instrument. The type of instrument adopted will depend on the particular circumstances pertaining to the charity proposed and the preference of the promoters or founders. Persons who are considering starting a charity are advised to seek legal advice about the format, content and legal sufficiency of the charity’s governing instrument. Before seeking advice, persons founding a charity must be clear in their own minds as to the purposes of the charity and the manner in which they wish the charity to be administered.
Reference: A Tax Guide for Charitable Institutions and Trusts of a Public Character by Inland Revenue Department
Suitable legal entities for non-profit and charity organizations
Many charities and non-profit organizations opt for incorporation of a Hong Kong Limited Company as vehicle of their organization under the Companies Ordinance regulated by the Companies Registry.
The main reason to form a limited company is to protect the people running the community projects or charity from personally liable to the debts and legal responsibilities. Company Limited by Shares and Company Limited by Guarantee can serve this purpose. However, Company Limited by Guarantee has advantages over the other.
First of all, Company Limited by Guarantee does involve share capital and thus it has no shareholder, the controlling members of the company cannot share the profits of the company, profits are retained within the company. Secondly, liability of the members is limited to the amount that the members respectively undertake to contribute to the assets of the company, this amount is small, e.g. HK$10 or HK$100.
Generally, company limited by guarantee is set up for the purposes of enhancement of education / training (like society or association), religion, relief of poverty, environmental protection, trust and foundation, betterment for the community, etc. Most companies established by this structure are not for profit-marking but they may not be charitable.
The registration of “company limited by guarantee” follows the usual steps of the registration of “company limited by shares” (the most common type of business entity for business in Hong Kong). Its registration requirement is as follows:
|Processing lead time||The Certificates of Incorporation will generally be issued in about 3 weeks.|
|Company structure||Must have a company secretary and at least two directors, one of whom may be the company secretary.|
It must not have a body corporate as its director.
|Government Fee||Fee is varying according to the number of members stated in the Incorporation Form:|
The registration fee is HK$170 (for number of members not exceeding 25 ), HK$340 (for number of members exceeds 25 but does not exceed 100 members), and HK$20 for every additional 50 members or less after the first 100 members.
This registration fee is subject to a maximum fee of HK$1,025.
|Organization name||Non-profit organizations can optionally be register their name without the word “Limited”.|
Extra processing time is expected e.g. one year, subjected to Companies Registry approval.
Apart from “Company”, most of the less-formal industry associations and social/recreational groups opt for the register as a Society under the Societies Ordinance. To register as a Society, an organization must register with the Societies Office of the Societies Office of Hong Kong Police Force.
Comparing to “company limited by shares”, setup of Society shows the advantages and disadvantages as follows:
Good. Minimal Cost
Unlike incorporation of company, registration of society is free of the statutory controls and
can be inexpensive to run. There is no fee for registering under the Societies Ordinance.
Set-up process is simple and hassle-free. A registered society can be very simple to run. Minimal formalities are required and administrative complexity can be kept to a minimum.
Bad. Unincorporated structure
When the society becomes inactive, the others from outside find difficulties in identifying the person-in-charge for decision making.
Bad. Personal liability
Both members of the management committee and sometimes the members of the association itself may incur personal liability.
Business Registration Requirement
Whether a non-profit organization registers as a Company or a Society, it must also complete Business Registration with the Inland Revenue Department. For company, process of incorporation in CR automatically trigger the registration of BR in IRD because of One-stop Company and Business Registration and One-stop Notification of Change of Company Particulars.