Setting up a Nonprofit Company in Hong Kong
7 minute read
If you want to start a nonprofit company in Hong Kong, you can find a great deal of information below. The journey ahead is full of challenges, but rest assured that it is rewarding.
What is a non-profit organization and how does it work?
A nonprofit organization is a term that covers a wide range of business models. Even though there are many classifications of such companies, most of them focus on furthering a social cause or a shared goal or mission.
There are a variety of different nonprofit organizations. However, there is a certain trend regarding the causes they serve:
- Human services
- Social programs
- Arts and culture
- Religious purposes
In Hong Kong, an organization that qualifies for this kind of classification has to follow three basic rules:
- It has to be a private organization separate from the government.
- The company has to be an established, self-governing body.
- The company shall not distribute profit to anything else other than for its own advancement.
Remember, these are basic requirements that have to be met, but there are other legal requirements too. However, if these three are not met, it is impossible to register your organization as non-profit.
What does it mean to be ‘non-profit?’
Being ‘non-profit’ means that the mission of a company is to provide services or products, knowledge, or research with the aim of helping the general public or a specific community.
Nonprofit companies do not keep their profits, they always re-invest the funds into programs, services, or research beneficial to their cause. Hence, owners of these organizations always enjoy various advantages in the business world.
The most popular advantage is the perk of becoming eligible for tax exemption. Furthermore, some other great benefits include the great feeling of helping people, being a legal entity, the eligibility of public and private grants, and limited liability.
And while some people believe that charity is the same as a nonprofit organization, this is not completely true. As a matter of fact, a charity organization is a type of non-profit.
Below you will find more information that will help you better understand nonprofit companies.
What defines a nonprofit organization in HK?
In general, there is no exact list of what activities or features define nonprofit entities in Hong Kong. However, bear in mind that every type of company that is nonprofit provides unique value to their communities.
Some nonprofits focus on the youth, some focus on environmental issues, and some are there to raise awareness about various diseases.
Every organization of this kind has to promote social good and progress through its work. The most important part is that the common theme is the promotion of the greater good. Therefore, we could say that this is what mainly defines a nonprofit organization.
You can differentiate nonprofit companies from the rest by the following activities:
- Fundraisers (to support charitable purposes)
- Raising awareness
- Identifying social issues
- Identifying social needs
- Supporting research efforts
How to set up a non-profit organization in Hong Kong?
If you want to set up a nonprofit organization or a charity in Hong Kong, you can do it in the form of a trust. Keep in mind that investors too can start a company at the same time in Hong Kong.
Investors considering starting a non profit company for charitable purposes instead of a fund should know that their legal status in Hong Kong shall be that of an LLC.
According to the Companies Ordinance under the Inland Revenue Department, legal business entities that qualify as charities or non-profit organizations in Hong Kong are usually exempt from taxation.
Hence, if you set up a nonprofit company in Hong Kong, you can enjoy this particular benefit. However, the profits acquired can only be used for philanthropic purposes.
Bear in mind, however, that a nonprofit company needs to follow a few necessary steps.
The whole process takes around five working days to register the company. The first and most important step is to pay an agency fee and choose a name without the word Limited for the company.
It is also required to choose at least two directors, a company secretary, have one founding member, and a registered office address in order to keep everything legal.
Also, bear in mind that all directors should be individuals that are not corporate. However, the members can choose either one of the options. There is no restriction regarding the resident status of any nationality of both shareholders and directors.
Once a name has been selected, the registration fee is next on the list. Then, you need to choose a business structure.
All business owners are required to submit the following documents:
- Copy of an official certificate as proof of your residency
- Photocopy of your passport
- Names of the shareholders, directors, and company secretary
- Copy of the Articles of Association
- Responsibilities and Obligations of Directors and Shareholders
- Questionnaire covering standard information such as the address
When all documents are submitted, the process of the incorporation takes place. Once that is completed, you receive the official documents stating that your company is officially incorporated.
It usually takes five business days to get a company of this kind registered.
Suitable legal entities
Many nonprofit companies choose incorporation of a Hong Kong limited company as the type of their organization entity under the Companies Ordinance regulated by the Companies Registry.
The key reason why this happens is because of the protection. To be precise, the main reason to register a limited company is to protect the people running the projects or charity from personally being liable to the debts and legal responsibilities.
Know that a company limited by shares or a company limited by a guarantee can serve this purpose.
In general, however, companies limited by a guarantee are better. They involve share capital and hence they have no shareholders. The profits cannot be shared between the controlling members.
Finally, the liability of the members is limited to the amount that the members undertake to contribute to the assets of the company.
Obligations to upkeep a nonprofit organization
Although various not-for-profit companies only use volunteer labor, many large or medium-sized nonprofits are likely to require staff (full-time employees).
And even though you can get a tax-exempt status, a nonprofit company has to pay wages and employment taxes. The employment laws have to be considered and followed. In this case, the rules are the same as for for-profit organizations.
Nonprofits can provide assets or income to individuals as fair compensation for their services. The organization needs to state officially in the papers that the funds will not be used for the personal gain or benefit of its founders, employees, supporters, relatives, or associates.
As a company owner, you need to file annual returns. If you have a very small budget, you will be exempt from this requirement.
Finally, it is worth noting that you could endanger your nonprofit status if your company:
- Takes part in political campaigns
- Engages in lobbying activities
- Operates in a way unrelated to its purpose
- Engages in activities that violate public policies;
- Fails to file required paperwork annually or biannual
- Operates for the benefit of private interests
What is a good non-profit organization to start?
Let’s take a look at the most common types of nonprofits so that you get a better understanding of which one might suit your needs best.
- The first one to be mentioned is the true nonprofit (charitable organization) that is always exempted from taxation. These organizations are food banks, museums, universities, animal shelters, religious organizations, and public safety groups.
- Then, there are civic leagues and social welfare organizations. These companies also promote philanthropy and positive change. But, the main difference is that these companies can lobby and participate in influencing politics.
- Moving on, there are social advocacy groups. These focus on lobbying and promoting social or political change. This is done through education and fundraising. The main difference between a social welfare company and a social advocacy group is whether they focus on lobbying and political influence as their primary driving force for creating change.
- Private charitable foundations are another type of nonprofits. A private charitable foundation is a privately owned nonprofit that is established to address concerns regarding education, medical research, environmental issues, and so on. The key difference between a private charitable foundation and a public charity is in the management and fundraising structure.
- Finally, there are corporate giving programs. And even though they are not considered nonprofit, their aim is philanthropic and a huge part of their business operations is used to donate to a charity on behalf of the organization.
Running a nonprofit company may not be easy, but the rewarding feeling of helping this world improve is really worth it. Selecting an honorable cause means that you are aware of various problems and that you are willing to help.
To make sure you are introduced to the basics of nonprofit companies in Hong Kong and the way they are set up, try to read this article once again.
And once you have a good understanding of how things work, you should start with the process of company incorporation in Hong Kong.