A non-governmental organization (NGO) is an organization independent of the government, usually made up of a group of volunteers or members, to pursue specific social, environmental, or human rights goals. NGOs are usually non-profit, meaning that they are not intended to make a profit, but to work for the good of society.
A charity is a type of NGO whose primary purpose is to provide charitable services or support vulnerable groups in society. Charities often rely on donations and grants to achieve their mission and use these resources to support community services, education, healthcare, and more.
In Hong Kong, being a charity does not mean that a company limited by guarantee must be established. Charities can exist in different legal forms, including associations, foundations, or companies limited by guarantee, among others. A company limited by guarantee is generally regarded as a more secure and trusted form of legal entity in Hong Kong as it is regulated by the Companies Ordinance and is subject to the corresponding corporate laws and financial reporting requirements.
Choosing to set up a company limited by guarantee as a form of legal entity for a charity has the following benefits:
- Legal norms: A company limited by guarantee is regulated by the Companies Ordinance, which provides a relatively well-established legal framework that regulates the company’s organizational operations, financial reporting and shareholders’ rights.
- Credibility and trust: The legal status of a company limited by guarantee can enhance the public’s trust and credibility in the organization. A charity that is regulated by law is able to increase transparency and transparency in financial management, which is important to attract donors and partners.
- Liability and risk management: As a form of organization with limited liability, a company limited by guarantee can help managers and shareholders reduce risk as their personal financial situation is usually not affected by the company’s debts.
The choice to set up a company limited by guarantee or another legal form depends on the specific needs, objectives, and legal requirements of the organization. Before making a decision, it is advisable to consult with professional legal and financial advisors to ensure that you choose the best legal structure for your philanthropy.
Companies Ordinance (Cap. 622) https://www.cr.gov.hk/tc/faq/companies-ordinance/types-n-changes.htm
Tax Guide for Charities and Trusts of a Public Character https://www.ird.gov.hk/chi/pdf/tax_guide_for_charities.pdf
