Guide to Societies in HK: NPO, Charity, Social Enterprise

Brief Introduction of Non-Profit Organisations (“NPOs”)  

A non-profit organisations ("NPOs") are often established for purposes related to environmental protection, education, social welfare, etc. Although NPOs do not see profit generation as the business objective, they can still create profits to support the financial needs of the organisations themselves. However, these profits cannot be distributed to the owners or shareholders of the NPOs. It is important to note that not all non-governmental organisations (NGOs) are non-profit making¹. For instance, workers’ unions, professional bodies, etc., do not fall under the non-profit category, although they do not specify their operational objectives. 

Since Societies Officers may register organisations of different natures and of different objectives as “Societies”², non-profit organisations may choose to set up a lawful and legal society as their legal form. Compared to a limited company by guarantee, the process and requirements for a society’s registration are less complex. Yet a society does not possess an independent legal entity³. 

Brief Introduction of Charities 

Charities are a type of non-profit organisation that are established for charitable purposes, including poverty relief, education development, religion promotion, etc³. If a charity meets certain criteria, it can apply to the Inland Revenue Department for tax exemption and obtain a tax-exempted status³. Only donations made to the charities with a tax-exemption status, can be recognised for tax deduction as “an approved charitable donation”³. More info can be found on the List of Charitable Institutions and Trusts of a Public Character Exempt From Tax³. 

Charities can be established in various legal forms, including a society, a trust company or a company limited by guarantee, etc. Charities registered in the form of societies do not have any legal status and the society’s registered office bearers have unlimited liability¹. On the contrary, charities in the form of companies limited by guarantee are regulated regarding aspects of management or financial status¹. 

Brief Introduction of Social Enterprises

Unlike non-profit organisations and charities, social enterprises ("SP") are profit-making businesses that seek to leverage commercial values to generate profit and, as a result, contribute to solving specific social problems⁴. The business nature of social enterprises largely varies, covering social, education, environmental, dietary, health and medical issues, etc., for example, community support, elderly care, food waste collection, organic farming, vocational training, restaurants, craft shops, hair salons, etc⁵.

Part of the profits of a social enterprise can be distributed to its owners. Generally, a social enterprise will retain 65% of its distributable profits to reinvest into the business, fulfilling the social objectives of the organisation itself. For example, it can be used to hire from underprivileged social groups and create more job opportunities as the business grows4. However, a social enterprise can also apply for a tax exemption from the Inland Revenue Department. If the tax exemption is granted, the social enterprise has to refrain from distributing profits to its owners⁶. It is relatively rare for social enterprises that take the legal form of a company limited by share to be granted any tax exemption⁶.

DBS Stand By You As Always

Are you planning to set up a non-profit organisation, a social enterprise or a charity? DBS SME Banking offers business account services and tailor-made corporate financial solutions that best suit the needs of those managing a society⁷. Click here to open a business bank account now. 

The above information is for reference only. For further information, please refer to the source and seek appropriate professional advice as necessary.

Article Published on 1 February, 2024

1Source: HKCSS - NGO Governance Platform Project - Newsletter - Issue 13  (https://www.dbs.com.hk/sme/disclaimer.page?url=https://governance.hkcss.org.hk/node/392 ) - P.2-P.3 Governance of NGOs in Different Legal Forms
(https://www.dbs.com.hk/sme/disclaimer.page?url=https://governance.hkcss.org.hk/sites/default/files/2019-10/HKCSS_E-newsletter_Issue%2013_Eng.pdf) 
2Source:- About Registration of a Society FAQ #4 (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.police.gov.hk/ppp_en/13_faqs/faq_so.html) 
3Source: IRD(https://www.dbs.com.hk/sme/disclaimer.page?url=www.ird.gov.hk)  - Tax Guide For Charitable Institutions and Trusts of a Public Character (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.ird.gov.hk/eng/pdf/tax_guide_for_charities.pdf) 
4Source：Home Affairs Department -What is SE? (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.sehk.gov.hk/en/concept.php) 
5Source：SEBC - SE Directory (https://www.dbs.com.hk/sme/disclaimer.page?url=https://socialenterprise.org.hk/en/sedb) 
6Source：Home Affairs Department - Set up SEs- Reference publication (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.sehk.gov.hk/en/publication.php) - SE GOOD START－Choosing a legal form and recommended practices (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.sehk.gov.hk/upload/pdf/Annex_E_Choosing_a_Legal_Form_and_Recommended_Practices.pdf) 
7Source：DBS (Hong Kong）Championing Social Entrepreneurship 

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