KEY TAKEAWAYS
- Company Limited by Guarantees (CLGs) offer the strongest governance framework and are preferred by institutional funders
- Societies suit smaller community groups but require supplemental governance policies
- Trusts excel for endowments but need additional transparency for operating NGOs
- All structures can obtain Section 88 tax exemption with proper compliance
- National security compliance is now mandatory for maintaining charitable status
Choosing the right legal structure is one of the most consequential decisions for any Hong Kong NGO. Whether you select a company limited by guarantee (CLG), registered society, or charitable trust directly impacts your governance requirements, audit obligations, fundraising credibility, and long-term sustainability.
This comprehensive guide examines each structure’s governance implications, helping boards, founders, and donors make informed decisions.
Quick Comparison: CLG vs Society vs Trust
|
Feature
|
CLG
|
Society
|
Trust
|
|---|---|---|---|
|
Legal Entity |
Yes |
No |
No |
|
Audit Required |
Yes (mandatory) |
No (recommended) |
No (recommended) |
|
Public Filing |
Yes (annual) |
Limited |
Voluntary |
|
Setup Complexity |
Medium |
Low |
Medium-High |
|
Best For |
Operating NGOs seeking scale |
Small community groups |
Endowments & grant-making |
Why Legal Structure Matters for Hong Kong NGOs
Your NGO’s legal structure shapes every aspect of operations, from liability protection to fundraising capacity. Understanding these implications is essential before registration.
Legal Personality and Liability Protection
Company Limited by Guarantee (CLG)
A CLG is a separate legal entity with capacity to own property, enter contracts, and sue or be sued. Members’ liability is limited to a nominal guarantee (typically HK$100 or less).
This limited liability and perpetual succession make CLGs the standard structure for institutional NGOs in Hong Kong. The organization continues to exist regardless of member changes.
Registered Society
A society, registered under the Societies Ordinance (Cap. 151), is a recognized association but not a corporate legal person.
It can operate and maintain bank accounts, but lacks the Companies Ordinance governance framework. Oversight is conducted by the Societies Officer of the Hong Kong Police Force.
Charitable Trust
A charitable trust is not a legal person. Trustees hold assets in their own names for charitable purposes and must comply with the Trustee Ordinance (Cap. 29) and fiduciary duties.
Governance depends entirely on the trust deed and trustee conduct (and any protector).
Fundraising Confidence and Regulatory Compliance
Institutional donors, grant makers, and government funders typically prefer CLGs due to predictable reporting under the Companies Ordinance and public filings.
Any structure (CLG, society, or trust) may apply for charitable recognition under Section 88 of the Inland Revenue Ordinance (IRO). The Inland Revenue Department (IRD) requires:
- Ongoing compliance with charitable purposes
- Lawful operation
- Adherence to national security obligations
National Security Compliance is Mandatory.
Charities engaging in activities inconsistent with safeguarding national security may face IRD review, enhanced scrutiny, or potential withdrawal of Section 88 recognition. This creates a higher compliance burden than for ordinary entities.
NGOs often engage in advocacy, community work, or public-facing activities, creating elevated reputational and regulatory risk. Boards must ensure public communications, partnerships, and programs align with lawful and national-security-compliant operations.
Strong structures reduce risk.
CLGs provide the most robust governance architecture for demonstrating oversight, documentation, and internal controls. Societies and trusts can meet expectations through well-designed constitutions or trust deeds, clear policies, and transparent reporting.
Structure does not change compliance requirements, but certain structures facilitate compliance more effectively.
Public Accountability Expectations
The Social Welfare Department’s Good Practice Guide on Charitable Fund-raising sets expectations for:
- Transparency in fundraising
- Accurate public messaging
- Proper donation handling
- Clear financial disclosure
Though voluntary, the Guide has become a benchmark for donor confidence and risk management.
Company Limited by Guarantee (CLG) Explained
CLGs offer perpetual succession, facilitating employment, property acquisition, long-term programs, and contractual relationships. This makes CLGs the dominant structure among medium-to-large NGOs.
CLG Governance Framework
CLGs are governed by the Companies Ordinance, which imposes defined duties on directors:
- Duty of care and skill
- Duty to act in good faith
- Duty to act for proper purposes
- Duty to avoid conflicts of interest
These duties provide a governance framework recognized by financial institutions and international donors. Boards must maintain:
- Proper internal controls
- Documented resolutions
- Clear role definitions
- Independent oversight mechanisms
Audit and Reporting Requirements
Part 9 of Cap.622 requires annual financial statements and an auditor’s report for all companies other than dormant companies. CLGs are public in character under the Ordinance and must file annual returns in respect of every financial year. Hong Kong’s “reporting exemption” allows small guarantee companies (annual revenue ≤ HK$25m) to use simplified financial reporting (SME‑FRF/SME‑FRS), but an audit is still required.
Section 88 Tax Exemption for CLGs
For Section 88 recognition, the IRD examines whether the organization is exclusively charitable, provides public benefit, reinvests all surpluses into charitable purposes, and maintains proper accounts. CLGs, with their built-in compliance framework, typically navigate these requirements more smoothly.
CLG Advantages and Disadvantages
Advantages:
- Strong governance framework with defined director duties
- Mandatory audited accounts build donor confidence
- Public filings enhance transparency
- High credibility with banks and institutional funders
- Simplified staff employment and property arrangements
- Perpetual succession ensures organizational continuity
Disadvantages:
- Higher compliance burden (annual returns, mandatory audits)
- More complex meeting procedures and documentation requirements
- Higher setup and ongoing administrative costs
Registered Society in Hong Kong Explained
Societies are community-rooted and administratively simple, making them suitable for smaller community groups and organizations.
Society Governance Requirements
Societies are registered with the Police Licensing Office under Cap. 151. Registration requirements include:
- Filing changes to particulars with the Societies Officer
- Maintaining current constitutions
- Compliance with public order requirements
The law focuses on registration and public order rather than corporate-style governance; board committee sophistication, conflict policies, and controls depend on the constitution and adopted practices.
Financial Accountability for Societies
The Societies Ordinance does not impose the same reporting regime as the Companies Ordinance. While societies must maintain proper records and update particulars, there is no universal statutory requirement to file audited financial statements publicly under Cap. 151.
However, societies recognized as Section 88 charities must:
- Keep proper accounts
- Submit annual reports/accounts on IRD request
- Notify IRD of changes
Best-practice fundraising guidance recommends transparent post-event accounting as non-compliance risks suspension of tax exemption.
While community groups function effectively as societies, larger NGOs may encounter donor due diligence challenges (e.g., when holding real estate, entering complex grants, or securing bank relationships) due to the absence of the Companies Ordinance framework. Societies holding Section 88 status remain subject to IRD expectations on governance, financial reporting, and lawful conduct.
Society Advantages and Disadvantages
Advantages:
- Simpler setup and maintenance for small groups
- Lower administrative costs
- Flexible internal rules via constitution
- Less regulatory burden than CLGs
Disadvantages:
- Weaker formal governance framework
- Less inherent transparency
- Potential challenges with institutional donors
- Not a separate legal entity (liability concerns)
- Difficulty securing bank facilities and property
Charitable Trust Structure Explained
Charitable trusts are ideal for endowments and grant-making but require careful structuring for operating NGOs.
Trust Governance Framework
Trustees must act in the best interests of charitable purposes and beneficiaries, exercise proper care and skill, invest prudently within Trustee Ordinance powers, and follow the trust deed.
Governance centers on trustee composition and competence, conflict policies, and investment governance.
Because trusts lack members and shareholder-style oversight, the primary accountability mechanism is trustee fiduciary duty and (if applicable) court supervision. This works well for focused grant-making but may lack transparency for community-facing service NGOs unless supplemented by advisory boards and published reporting.
Trusts' Accounts and Audit
Trusts have no companies-law audit requirement. Trustees must keep proper accounts and apply trust assets to charitable purposes consistent with the deed and the Trustee Ordinance. For Section 88-recognized charitable trusts, the IRD can require accounts and annual reports and conducts periodic reviews; failure to comply risks withdrawal of recognition. If a trust company (as corporate trustee) is used, it must meet Cap. 29 Part VIII registration and capitalization requirements.
Trust Advantages and Disadvantages
Advantages:
- Ideal for endowments and grant-making
- Clear fiduciary focus
- Donor-directed structuring via deed (including protectors)
- Flexible investment governance
Disadvantages:
- No corporate personality
- Transparency depends on trustees’ voluntary disclosure
- Succession and trustee composition require careful planning
- Less suitable for service-delivery operations
Standards and Auditor Focus for NGOs
Regardless of form, auditors follow HKSAs and need to tailor procedures to NGO revenue streams (donations, events, restricted funds) and control environments, which are often less formal than corporates.
The HKICPA has highlighted common deficiencies (e.g., completeness of donation income and inadequate understanding of governance structures), underscoring the need for robust internal controls and board oversight.
Audit and Reporting Differences—Detail
| Aspect | CLG | Society | Charitable Trust |
|---|---|---|---|
|
Governing law
|
Companies Ordinance (Cap.622)
|
Societies Ordinance (Cap.151)
|
Trustee Ordinance (Cap.29) + common law
|
|
Legal personality
|
Yes (separate entity)
|
No (association)
|
No (trust; trustees hold title)
|
|
Annual financial statements
|
Required
|
Not prescribed by Cap.151; expected for s.88 reviews
|
Required by good practice and s.88 expectations
|
|
Statutory audit
|
Yes (except dormant)
|
Not under Cap.151; may be required by constitution/ donors; IRD can request
|
Not mandated by Cap.29; donors/IRD may expect audit
|
|
Public filing
|
Annual return and (for relevant companies) filings at Companies Registry
|
Register kept by Societies Officer; no public accounts filing
|
No public filing regime; trust company registration if applicable
|
|
Eligibility for simplified reporting
|
Small guarantee company (≤ HK$25m revenue)
|
N/A
|
N/A
|
Fund-raising Compliance and Public Trust
Hong Kong lacks a unified charities regulator, but multiple agencies oversee fundraising: the Social Welfare Department (flag days and public subscription permits), Home Affairs Department/Food and Environmental Hygiene Department/Lands Department (specific activities/venues), and IRD (donation deductibility). The Good Practice Guide on Charitable Fund-raising consolidates expectations: accurate communications, proper cash collection handling, timely disclosure of costs versus proceeds, and conflict safeguards. The 2017 Audit Commission report emphasized stronger transparency, and boards should assume donors benchmark against these practices.
Governance Best Practices for All Structures
Regardless of legal structure, Hong Kong NGOs should implement these governance practices:
- Codify board/trustee responsibilities in a governance manual: conflict of interest policies, related-party transactions, reserves policy, investment policy, delegation framework, whistleblowing procedures, and meeting protocols. CLGs should align with Cap. 622; trusts with trust deed plus Cap. 29; societies with constitution plus s.88 expectations.
- Strengthen financial controls around donation completeness, restricted fund tracking, and event reconciliations; auditors frequently flag these areas.
- Align with fundraising best practices: transparent cost disclosures, use of required permits, careful contractor oversight, and prompt public reporting (even when not legally mandated).
- Prepare for IRD reviews: maintain minutes, policies, and program evidence; notify IRD of changes to purposes, governance, or cross-border spending that may affect s.88 status.
- Choose reporting standards strategically: qualify for simplified reporting where eligible (e.g., small guarantee company), but maintain audit readiness and board-level financial literacy.
FAQ: Hong Kong NGO Legal Structures
Which NGO structure causes the most confusion?
Societies—because many groups assume society registration provides a full corporate governance framework (it does not). The Societies Ordinance focuses on registration and public order, not corporate-style directors’ duties, mandatory audited filings, or public financial transparency. When societies later seek major grants, bank facilities, or s.88 recognition, they often discover governance and reporting expectations they had not built.
Which NGO structure carries the highest governance risk?
Charitable trusts—for operating NGOs (as opposed to endowed grant-makers). A trust’s accountability relies on trustee fiduciary duty and the deed; without member oversight or Companies Ordinance reporting, transparency is largely voluntary (aside from IRD reviews). This is effective for endowments managed by professional trustees but risky for service delivery unless trustees adopt CLG-level controls, publish accounts, and institute independent oversight. Many larger operating NGOs minimize this risk by using a CLG with strong board processes while using trusts only for endowment or designated funds.
Can I change my NGO's legal structure later?
Restructuring typically requires:
- Dissolving the old entity
- Forming a new entity
- Transferring assets and liabilities
- Re-applying for Section 88 recognition
- Notifying all stakeholders and funders
Choose the right structure from the start to avoid this complexity.
Do all structures qualify for Section 88 tax exemption?
Yes, CLGs, societies, and trusts can all obtain Section 88 recognition if they meet IRD requirements:
- Exclusively charitable purposes
- Public benefit provision
- Surplus reinvestment into charitable purposes
- Proper accounts maintenance
- National security compliance
However, CLGs typically navigate the application process more smoothly due to their built-in compliance framework.
Conclusion: Choosing the Right Structure
For operating NGOs seeking scale, multi-year funding, and public confidence: A CLG is typically optimal—it embeds director duties, annual audits, and transparent filings that donors recognize and trust.
For smaller community groups: Societies suit smaller organizations, but leadership should proactively supplement the lighter legal framework with robust constitutions, audits, and fundraising transparency—particularly when holding or seeking Section 88 status.
For endowments and grant-making: Charitable trusts excel with rigorous fiduciary stewardship. For service-delivery charities, pair a trust (for funds) with a CLG (for operations) to balance control and accountability.
The right structure provides a foundation for sustainable growth, regulatory compliance, and donor confidence. Once established, boards must implement governance practices tailored to their structure’s specific requirements and their organization’s mission.