How do I choose between shares and guarantee for a HK company

How Do I Choose Between Shares and Guarantee for a HK Company

Your purpose determines the structure. A company limited by shares is for profit-making ventures. A company limited by guarantee serves non-profit bodies that do not distribute profits to members. If your organisation will generate profits for distribution, that decides the structure.

Company Limited by Shares vs Guarantee HK

A private company limited by shares has a share capital divided into issued shares. Each member's liability is limited to the amount unpaid on their shares. This structure suits trading businesses that generate profits and distribute them to shareholders as dividends. The company's articles of association govern the rights attached to each class of share, and directors determine the issue price of shares under the no-par-value regime.

A company limited by guarantee has no share capital. Instead, each member guarantees to contribute a fixed amount of HK$1,000 or HK$10,000 if the company is wound up. Members receive no dividends or return on investment. Their liability is limited to the amount they have guaranteed. This structure is not suitable for commercial trading.

Non-Profit Company Structure Hong Kong

The non-profit company structure in Hong Kong is almost always a company limited by guarantee. Charities, clubs, trade associations, professional bodies, and educational institutions commonly use this form. The company's articles of association must prohibit the distribution of profits to members. Any surplus must be applied to the organisation's objects. The Companies Registry requires applicants to demonstrate the company is formed for a lawful purpose that benefits the community or a defined class of persons, not for the financial gain of its members.

A company limited by guarantee files Form NNC1G at incorporation, not Form NNC1. The model articles for a company limited by guarantee differ from those for a company limited by shares. The Companies Registry scrutinises the objects clause closely to ensure the non-profit purpose is genuine.

Company Limited by Guarantee Purpose HK

A company limited by guarantee in Hong Kong provides a legal structure for organisations that do not exist to make a profit for their members. The company has separate legal personality, so members are not personally liable for its debts beyond their guarantee amount. This structure allows the organisation to hold property, enter contracts, and sue or be sued in its own name.

A company limited by guarantee must still comply with the Companies Ordinance (Cap. 622). It must appoint a company secretary, maintain a registered office in Hong Kong, keep statutory registers including a register of members, and file an annual return on Form NAR1. It must also have its financial statements audited annually unless it qualifies as a dormant company. The annual return registration fee for a company limited by guarantee is the same as for a private company limited by shares.

Making Your Decision

If your organisation will trade for profit and distribute that profit to owners, choose a private company limited by shares. If your organisation is a non-profit that will not distribute profits to members, choose a company limited by guarantee. The Companies Registry's guidance notes for Form NNC1 and Form NNC1G explain the requirements for each structure. Consult a professional adviser if your organisation's purpose is not clearly profit or non-profit, as hybrid structures are not available under Hong Kong law.