(IV) Types of organization (society vs company limited by guarantee)
(1) A society formed under the Societies Ordinance
(a) Nature of organisation
According to Section 2 of the Societies Ordinance, a society means:-
“any clubs, company, partnership or association of persons, whatever the nature or objects, to which the provisions of the Ordinance apply”
According to Section 2(2) of the Societies Ordinance, the provisions of the Societies Ordinance do not apply to certain persons as set out in the Schedule of the Societies Ordinance. In short, they are companies, trade union, credit unions etc. For ease of reference, a copy of the Schedule is attached herewith.
(b) Application for registration as a society under the Societies Ordinance
The procedures for registration as a society under the Societies Ordinance are relatively simple.
A society is required to apply to the Societies Officer for registration within 1 month of its establishment (Section 5(1) of the Societies Ordinance). The application must be signed by 3 office-bearers and include details of:
- the name of the society;
- the objects of the society;
- the particulars of the office-bearers of the society; and
- the address of the principal place of business of the society and of every place or premises owned or occupied by the society.
A copy of the application form can be found at http://www.police.gov.hk/info/doc/New%20Application%20for%20Societies%20Registration.pdf
(c) Choosing a name of the society
There are certain restrictions on the name of the societies. According to Section 9(1) of the Societies Ordinance, no local society shall use a name for itself or its branch which:
- is identical with that by which a society already in existence is known or so closely resembles that name;
- is likely to mislead the public as to the true character or purpose of the society;
- suggests that the society belongs to a class of persons specified in the Schedule when in fact it does not so belong; or
- contains the words “rural committee” or any other words which, in the opinion of the Societies Officer, suggest or are calculated to suggest that the society is a rural committee or federation or other association of rural committees unless such society is a rural committee or a federation or other association of rural committees acknowledged as such by the Secretary for Home Affairs.
No fees are payable for the application for registration of a society.
(2) A company limited by guarantee formed under the Companies Ordinance
(a) Nature of a company limited by guarantee
For a company limited by guarantee, the liability of its members is limited by the company’s articles to the amount that the undertake, by those articles, to contribute to the assets of the company in the event of its being wound up.
This form of company is appropriate when initial share capital is not required and when there is no intention to distribute profits. It is typical of charities and non-profit organisations.
(b) Setting up of a company limited by guarantee under the Companies Ordinance
- A name search needs to be carried out with the Companies Registry on the proposed company name to avoid using a name which is the same or too similar to that of another company which is already registered.
- An Articles of Association setting out the objects of the company and a Form NNC1G – Incorporation Form (Company Not Limited by Shares) have to be prepared and filed to the Companies Registry upon signing by the members and the directors of the company.
- Relevant activation documents, including the appointment of directors, secretary and the application for a Business Registration Certificate have to be filed.
- Upon the filing of all the relevant documents, it normally takes 5 to 6 weeks for the Companies Registry to issue a Certificate of Incorporation and for the Inland Revenue Department to issue a Business Registration Certificate.
(c) Continuing obligations of a company limited by guarantee
The continuing obligations of a Hong Kong company under the Companies Ordinance include:-
- maintaining registers of debenture holders, members, charges, directors and company secretaries;
- keeping proper books of account;
- holding annual general meetings;
- preparing and filing annual returns with the Companies Registry together with the certified true copies of the company’s audited accounts (including the balance sheet laid before the company at its annual general meeting (“AGM”), the report of the auditors and the report of the directors) within 42 days after the company’s return date. The return date for a guarantee company is 9 months after the end of the company’s accounting reference period. The accounting reference period is the period by reference to which the company’s annual financial statements are to be prepared. (a filing fee of HK$105 is payable to the Companies Registry);
- preparing and putting before an annual general meeting a profit and loss account and a balance sheet;
- preparing and putting before an annual general meeting an auditor’s report and a directors’ report (audit fee to be payable to an accountant for the preparation of the audit report); and
- renew the Business Registration Certificate upon its expiry – Not applicable if the company is exempted from profits tax under Section 88 of the Inland Revenue Ordinance
- Incorporation fee payable to the Companies Registry on application:
- HK$170 for 25 or less members;
- HK$340 for exceeding 25 members but not exceeding 100;
- HK$20 for every 50 members or less after the first 100 (subject to a maximum fee of HK$1,025);
- Business Registration fee payable to the Inland Revenue Department – Not applicable if the company is exempted from profits tax under Section 88 of the Inland Revenue Ordinance; and
- Audit fee payable for the audited account to be filed annually.
(3) Society or company limited by guarantee ?
(a) Advantages of a society
The setting up of a society is simple, less formal and quicker.
A society is more flexible as there is no particular set of rules governing the internal operation of the society. Members of the society are free to set their own rules.
There are no specific continuing obligations of a society. It is not required to file any annual returns or any other documents to the Societies Officer.
It is also cheaper to set up a society than a company limited by guarantee. There is no registration fee. If the society is not carrying on a business, a Business Registration Certificate is not required and the annual fee is not applicable. It is also not required to file any audited accounts annually and the fee to an accountant is not required.
(b) Advantages of a company limited by guarantee
The internal operation of a company limited by guarantee is governed by its Articles of Association and the Companies Ordinance. The rules are clear and the members are well informed of how the company will operate.
As an audited account is required to be filed with the Companies Registry annually, the accounts of the company will be better managed. As the audited accounts are required to be tendered at the annual general meeting, members of the company will be well informed of the financial position of the company.