In Hong Kong, company limited by shares is the most common form of company for trading and doing business. A company limited by shares has a share capital which is divided into a number of shares of certain value each. Some or all of the shares are then held by investors, which are known as the shareholders of the company. If the company is prosperous and makes good profits, the company will then distribute dividend to the shareholders in accordance with their respective shareholdings. If the company suffers a loss, the shareholders will, at the most, lose all their investment in the shares of the company. In other words, their liabilities are limited to the value of the shares.
The most common ways of establishing a charitable organization in Hong Kong are through the use of:
A society established under the Societies Ordinance (Cap 151)
A company incorporated under the Companies Ordinance (Cap 32)
A company limited by guarantee is a company which is often used as a device for setting up of a club, association, school or charitable body. The liability of its members is limited to the amount which they agree to contribute to its assets in the event of the company being wound up. The members are not required to make monetary contribution to the company at the time of incorporation. They are only required to give an undertaking to pay a certain amount to the company if the company is in liquidation. In practice, the amount is merely nominal, e.g. $100.
The most popular method for establishing a charity is a Company Limited by Guarantee under the Companies Ordinance of Hong Kong (Cap 32), which allows for greater transparency and legitimacy in establishing a charity in Hong Kong. The draft incorporation documents for a Hong Kong company are submitted at the same time as the application for Section 88 of the Inland Revenue Ordinance Cap 112 tax exemption status to the Inland Revenue Department for pre-approval.
Under Hong Kong law a charity must be established exclusively for charitable purposes and as such must fall into the following categories:
Relief of poverty;
Advancement of education;
Advancement of religion;and
Other purposes of a charitable nature beneficial to the community not falling under any of above categories. (For example, this may include charities with the purpose of providing care and protection to animals or for the provision of specific medical purposes such as cancer research.)
EXAMPLES OF PURPOSES WHICH THE COURT HAD HELD TO BE CHARITABLE PURPOSES
Relief of poor people;
Relief of victims of a particular disaster;
Relief of sickness;
Relief of physically and mentally disabled;
Establishment or maintenance of non-profit-making schools;
Provision of scholarships;
Diffusion of knowledge of particular academic subjects;
Establishment or maintenance of a church;
Establishment of religious institutions of a public character;
Prevention of cruelty to animals;
Protection and safeguarding of the environment or countryside.
EXAMPLES OF PURPOSES WHICH THE COURTS HAD HELD TO BE NON-CHARITABLE PURPOSES
Attainment of a political object;
Promotion of the benefits of the founders or subscribers;
Provision of a playing field, recreation ground or scholarship fund for employees of a particular company or industry;
Encouragement of a particular sport such as angling or cricket.