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posted 2 years ago
By Diane Fan:
Setting up a charity in Hong Kong may sound an attractive proposition, but they are subject to more, not less, compliance requirements than ordinary companies.
Part I of this series briefly summarised basic requirements and structures for such establishment. In this second article, the author focuses on requirements on corporate governance of charities, as well as continuing obligations for compliance after establishment.
Governance and compliance
Good corporate governance and compliance is very important to companies, businesses and organisations incorporated in Hong Kong, and the concept of corporate governance covers a lot of aspects.
While legal requirements for corporate governance differ among various types of businesses, they generally include requirements on: accountability of the board of directors, senior management and committees; auditing and reporting; relationships with shareholders and stakeholders; and internal control systems and risk management mechanisms.
Charities, as organisations incorporated and existing under the laws of Hong Kong, must also have in place a sound governance system subject to a series of compliance requirements.
The Guide to Corporate Governance for Subvented Organisations, issued by the Social Welfare Department, outlines best governance practices for subvented organisations, including charities.
Governing Instrument
Charities must be established by a written governing instrument. In the case of companies limited by guarantee, the governing instrument is their articles of association. The governing instrument should contain clauses that cover:
Continuing Obligations
Since 1 August 2018, charities are required to upload audited accounts of every charity fundraising or lottery activity approved by the Social Welfare Department or Home Affairs Department to the fundraising activities page on the GovHK website.
This applies to all charities, regardless of whether exempted from profits tax under section 88 of the Inland Revenue Ordinance.
After confirmation as tax-exempt, charities are subject to the following continuing obligations:
Most charities are companies limited by guarantee, and accordingly must comply with the general requirements under the Companies Ordinance, including the following continuing obligations:
While governing members generally cannot receive remuneration, charities should nonetheless assume responsibilities of compliance with corporate governance obligations with diligence and professionalism.
Qualified auditors should be engaged to audit the accounts and annual reports submitted to the IRD. The full content of annual reports, including a breakdown of received donations, main costs and expenditures, should be published on the IRD website and made publicly available at all times.
Ultimately, charities may be subject to compliance with even more obligations than an ordinary company. For this reason, prior to establishing a charity, founders are advised to thoroughly consider the issues associated with relevant continuous reporting and compliance requirements.
First published in July/August issue 2022 of China Business Law Journal.
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Note: This material has been prepared for general information purposes only and is not intended to be relied upon as professional advice for any cases. Should you need further information or legal advice, please contact us.
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