Welcome to HK Account Q&A. (DISCLAIMER: All information provided on this website is for self-reference only. We are not responsible for any decisions made, financial or otherwise, based on information or links provided by us. We do not guarantee the accuracy of the information. Readers are reminded that you use such information and materials entirely at your own risk. Web editor gives no warranty and accepts no responsibility or liability for the accuracy or the completeness of the information and materials contained in this website. Under no circumstances will this web's editor be held responsible or liable in any way for any claims, damages, losses, expenses, costs or liabilities whatsoever resulting or arising directly or indirectly from readers' reliance on the information and materials on this website.)
0 votes

Members cannot receive dividends, and will usually be involved due to their commitment to the company’s objectives, rather than to benefit financially.

The memorandum and articles will usually differ from those of the standard share capital company and will generally include a defined list of specific objectives, and also a clause that prohibits the distribution of surplus profits.

The balance sheet of a company limited by guarantee will be the same as that of a company limited by shares, apart from the fact that it will have no share capital.

The bottom section of the balance sheet should be headed ‘Reserves’ rather than the usual ‘Shareholders’ funds’.

There is no requirement, but it is common practice, to also include a note disclosing the guarantees; something simple such as: ‘The company is limited by guarantee of members and does not have a share capital. The liability of members is limited to £1.'

The usual rules about related parties will apply, and the director(s) will be related parties in the usual way. Whether or not a member falls into the definition of related party will depend on the circumstances.

Payments to members can only be by way of remuneration, as no dividends are possible.

If the company is a charity, the members may also be trustees, and there are of course rules about payments to trustees.

Reference: https://www.accaglobal.com/us/en/technical-activities/technical-resources-search/2013/february/companies-limited-guarantee.html

asked by (10.5k points)

Company limited by guarantee can't distribute dividends as it doesn't not have share capital, so that no base to determine shares of each member against the Company.

Relevant Company Ordinance (Cap. 622) clauses (extra only):

Section: 9 

Heading: Company limited by guarantee

(1) For the purposes of this Ordinance, a company is a company limited by guarantee if—

  • (a) it does not have a share capital; and
  • (b) 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.

(2) Subsection (1)(a) does not apply if the company was formed as, or became, a company limited by guarantee under a former Companies Ordinance before 13 February 2004.

But we think a company limited by guarantee, by special resolution, can distribute its cashes to its member equivalently, in the form of salaries or gifts.

5 Answers

0 votes

Extra from Model articles for a company limited by guarantee provided by CR:

Division 1—Becoming and Ceasing to be Member 

32. Application for membership 

A person may become a member of the company only if— 

  • (a) that person has completed an application for membership in a form approved by the directors; and 
  • (b) the directors have approved the application. 

33. Termination of membership 

  • (1) A member may withdraw from membership of the company by giving 7 days’ notice to the company in writing
  • (2) Membership is not transferable. (or transferable)
  • (3) A person’s membership terminates when that person dies or ceases to exist. 

Reference: https://www.cr.gov.hk/en/companies_ordinance/docs/AA_Sample_D.pdf

answered by (10.5k points)
0 votes

Being company limited by guarantee itself doesn't exclude the company from subjected to corporate tax.

Please refer to:

http://www.hkaudit.net/?qa=60/further-iro-exemptions-entities-already-carried-business answer 4


IRD guidance: https://www.ird.gov.hk/eng/tax/ach_tgc.htm

for more details on Section 88 of the Inland Revenue Ordinance - Charity exempt form tax.

answered by (10.5k points)
0 votes

Relevant Company Ordinance (Cap. 622) clauses (extra only):

Section: 453 

Heading: Public company and company limited by guarantee required to have at least 2 directors

This section applies to—
  • (a)
  • a public company; and
  • (b)
  • a company limited by guarantee.
answered by (10.5k points)

All directors of company limited by guarantee should be natural persons:

Relevant Company Ordinance (Cap. 622) clauses (extra only):

Section: 456 

Heading: Restriction on body corporate being director

(1) This section applies to—

  • (a) a public company;
  • (b) a private company that is a member of a group of companies of which a listed company is a member; and
  • (c) a company limited by guarantee.

(2) A body corporate must not be appointed a director of the company.

(3) An appointment made in contravention of subsection (2) is void.

(4) Nothing in this section affects any liability of a body corporate under any provision of this Ordinance or the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) if it—

  • (a) purports to act as a director; or
  • (b) acts as a shadow director,

although it could not, by virtue of this section, be appointed as a director.

0 votes

Annual Return of a Local Public Company or a Company Limited by Guarantee

You must deliver an annual return (Form NAR1), in respect of every financial year, to the Registrar for registration within 42 days after the company’s return date (prescribed time period) pursuant to section 662 of the Companies Ordinance.

The return date for a public company is 6 months after the end of the company’s accounting reference period. The return date for a guarantee company is 9 months after the end of the company’s accounting reference period.

Reference: https://www.cr.gov.hk/en/publications/docs/8B-e.pdf

answered by (10.5k points)
0 votes

Relevant Company Ordinance (Cap. 622) clauses (extra only):

Section: 114 

Heading: Notifying Registrar of increase in number of members of company limited by guarantee

If a company limited by guarantee increases the number of its members beyond the registered number, the company must, within 15 days after the increase is resolved by the company or takes place (whichever is the earlier), deliver to the Registrar for registration a notice of the increase in the specified form.
If a company contravenes subsection (1), the company, and every responsible person of the company, commit an offence, and each is liable to a fine at level 3 and, in the case of a continuing offence, to a further fine of $300 for each day during which the offence continues.
In this section—
registered number
the number of members with which the company proposes to register, whether contained in the incorporation form for the purposes of section 1(e) of Schedule 2 or stated in the articles under section 10(2) of the predecessor Ordinance; or
the increased number of the company’s members last notified to the Registrar under subsection (1).
answered by (10.5k points)