Company Limited by Shares vs. Company Limited by Guarantee
There are many types of companies you can choose to register in Hong Kong, the most common type is private companies limited by shares, which is what most of our clients from overseas usually go with. The reason behind this is that companies limited by shares are owned by one company member only. This article mainly introduces the characteristics and major differences between the two categories. We hope you will gain some knowledge on this particular topic after a thorough read.
Company Limited by Shares
According to the Hong Kong Companies Ordinance, a company is limited by shares if the liability of its members is limited by the company’s articles to any amount unpaid on the shares held by the members. The term-limited by shares means the shareholder’s liability is only limited to the amount of shares one has. In other words, the company is legally separated from the company members. Their personal assets will not be affected assuming the company is in debt as they are only liable for obligations incurred by the company up to the amount of their ownership stake.
A private company limited by shares is required to have at least one director (up to 50 members maximum) and one shareholder (sole director and shareholder can be the same person) as well as a registered office address in Hong Kong, and a TCSP (Trust and Company Service Provider) licensed company secretary as representative. Additionally, the company needs to file for a profit tax return form to the Inland Revenue Department 18 months after it’s incorporated as well as submit an audited report. The company director cannot be the company secretary at the same time.
The incorporation time can be relatively short (as fast as one business day), and the incorporation fee is less expensive than a company limited by guarantee. Hence, for most people who want to profit through commerce, generate funds by selling shares and distributing dividends to shareholders. A company limited by shares is most suitable.
Company Limited by Guarantee
On the contrary, a company limited by guarantee must not have shareholders and it must be owned by guaranteed members. It is usually incorporated for non-profit purposes such as charity organizations, clubs, and schools. According to the Hong Kong Companies Ordinance, the liability of its members is limited by the company’s articles to the amount that the members undertake, by those articles, to contribute to the assets of the company in the event of its being wound up. Furthermore, the company must have at least 1 founder member, 1 TCSP-licensed company secretary, 1 designated representative, 2 natural person directors, and a registered office address in Hong Kong to be incorporated.
In terms of compliance, a company limited by guarantee must file for an annual return every year as well as submit an audited report, certified true copies of related financial statements, and directors’ reports to the Hong Kong Companies Registry. Not to mention, it is an establishment that is limited by guarantee is distinct from its members legally. It can therefore take out loans, sign contracts, own properties, sue or be sued, and many more things under its own name.
The average timeline to set up a company limited by guarantee is approximately 4–6 weeks. As briefly mentioned, most of them are incorporated for charitable purposes but that does not automatically qualify a company limited by guarantee to be a charity. Furthermore, the Inland Revenue Department has the final decision on whether a company limited by guarantee qualifies as a charity. The company must serve the following purposes to be of consideration: relief of poverty, enhancement on education, promotion of religion, or be beneficial to the community. On the other hand, a company that is a charity is exempt from taxation and will always be exempt.
As a company formation agency, we can assist you in incorporating a company for a reasonable price whether it is a company limited by shares or a company limited by guarantee. Please feel free to contact us via email at info@cheapincorp.com or via email at +852 5404 0902.