You may have great ideas in helping the community or promoting awareness for any social issues, however knowing what steps you need to take may require proper assistance.
Firstly, you need to identify what role you could play and how you could play such role effectively in helping to promote charitable causes that are close to your heart.
What to Do?
Perhaps, find out whether there are any existing charities, local groups or global non-governmental organisations (‘NGOs’) which share your values. If you manage to find one or more of such charities, you need to ask more questions or conduct necessary due diligence in making sure that your chosen charities are the right fit. Then, you might want to explore the opportunity of working closely with such charities either by way of partnership or other workable ways. If you prefer to set up your own charity to benefit society, below are the key tips we think you ought to consider:
- What are your charitable objects?
- Who will be benefitting from your charity and where are they situated?
- What activities do you have in mind? A 12-month-plan is preferable.
- What fund-raising events do you have? Do you need outsider funds?
- Who will participate in your charity?
- What resources could you draw from?
- What legal structure do you intend to use?
For the purpose of this article, we would like to share with you what structure you may consider and whether you should set up your charity with tax exemption.
Setting Up a Charity in Hong Kong
In Hong Kong, you could set up a charity through different legal structures but the most common one is a company limited by guarantee as it is straightforward and can achieve financial transparency. We see more and more people moving away from having an unincorporated body, association or trust to run a charity because the people running the charity are regarded as trustees and have personal liability for any debts incurred in the course of the charity’s business.
Unlike the unincorporated body, association or trust, a charitable company with limited guarantee duly incorporated in Hong Kong can own property under its own name, be accountable for its own debts, and can enter into transactions with third parties (i.e. without the need for the trustees to do so on its behalf). As a company limited by guarantee, the charity will have directors and members who are fully protected by the legal nature of the company unless for fraud or gross negligence. Also, companies limited by guarantee must submit returns as well as audited accounts annually and comply with the provisions of the Companies Ordinance (Cap. 622), which, among other things, regulate duties and responsibilities of every director.
The next consideration is whether you would like to apply for your charity to be exempt from tax under section 88 of the Inland Revenue Ordinance (Cap. 112) (the ‘Tax Exemption’). To be qualified for the Tax Exemption, your charity must be established exclusively for charitable purposes with objects that fulfill the requirements imposed by the Inland Revenue Department. With the Tax Exemption, this means that each donation to your charity is exempt from tax and your donor can claim tax benefit. If your charity needs support from the public, having your charity with the Tax Exemption is inevitably more attractive. However, if your charitable object is very limited, for instance to preserve elephants around the world, then such objective may not fall within the charitable objects set out by the Inland Revenue Department.
We believe in giving back to society and we therefore encourage people to think thoroughly what issues they need to take into consideration when setting up their charities because sustainability and good corporate governance are just as crucial as the good intention to benefit others.
Our team at Hugill & Ip has extensive experience in dealing with Corporate & Commercial matters – so if you need further advice on these subject and other topics discussed, get in touch with us to find out how we can help.
This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.