Social Enterprise Law Surveys |
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Hong Kong |
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| (Asia Pacific) Firm Steptoe LLP | |
| What jurisdiction(s) do you practice in? | Hong Kong, SAR, People’s Republic of China |
| What are the most commonly used types of for-profit corporate organizational forms in your jurisdiction (e.g., corporation, limited liability company, benefit corporation, social purpose corporation, etc.) used by Enterprises operating a trade ... | Of the five types of companies authorized under the Hong Kong Companies Ordinance (Cap. 622), two are most commonly used for for-profit activities:
a. Enterprises seeking financing from investors that will have multiple owners typically will utilize the Private Company Limited by Shares and the Public Company Limited by Shares forms. b. Hong Kong law does not contain any special provisions for Social Enterprises, and Social Enterprises may be operated by any type of legal entity in Hong Kong. A Social Enterprise is generally regarded as one having both a commercial and a social aim. The Private Company Limited by Shares and Private Company Limited by Guarantee (discussed below) are often used to operate Social Enterprises in Hong Kong. Social Enterprises may also be operated by Hong Kong charities. |
| Do any of your jurisdiction’s traditional organizational forms require or permit the board or managers to consider, balance or prioritize interests other than shareholder value in decision making? What other interests, if any, are they required... | While it is not mandatory for all companies to have object clauses in their constitutional documents, a company operating a Social Enterprise may include an object clause containing a social objective and is required to do so if seeking tax exemption. A Private Company Limited by Shares may also institute “asset lock” and “cap of profit sharing” provisions in its constitutional document to limit the disposal or use of assets for Social Enterprise purposes and the distribution of profits to shareholders. Generally speaking, companies in Hong Kong are not prohibited from prioritizing interests other than shareholder value, although specific rules may apply in circumstances such as insolvency and restructuring. |
| Does your jurisdiction have organizational forms specifically designed for Social Enterprises? If so:a. What type(s) of organizational forms are they?b. How do they materially differ from the most closely analogous traditional organizational ... | Hong Kong does not have a corporate form specifically designed for Social Enterprises. |
| Are Social Enterprises permitted to be formed and operated as Nonprofits? If so: a. Are Nonprofits that are Social Enterprises treated differently under the law as compared to Nonprofits that are not Social Enterprises, whether from a corporat... | Generally speaking, Social Enterprises may be operated by any type of corporate body in Hong Kong, including corporations with tax exempt status under Section 88 of the Inland Revenue Ordinance. The Company Limited by Guarantee, which is a limited liability form typically used for charitable and community-based activities, may also operate Social Enterprises and is commonly used for this purpose in Hong Kong. In a Company Limited by Guarantee, the members are liable only for an amount specified in the company’s articles of association. While both the Company Limited by Guarantee and the Company Limited by Shares are commonly used forms for operating Social Enterprises, tax exemption is more easily afforded to the Company Limited by Guarantee. A Social Enterprise operated by a Company Limited by Shares must fulfill certain requirements, such as prohibiting distributions of income to shareholders and remuneration to directors, among others, in its constitutional documents, to qualify for tax-exempt status under the Inland Revenue Ordinance. A Company Limited by Guarantee with tax-exempt status may also be exempted from obtaining a business registration certificate for the operation of a Social Enterprise. Societies registered under the Societies Ordinance (Cap. 151) and bodies established by special ordinance may also operate Social Enterprises, although they would not typically exist solely for the purpose of operating a Social Enterprise. Generally, Nonprofits that do not operate Social Enterprises are not treated differently as compared to Nonprofits that operate Social Enterprises. |
| Does your jurisdiction allow for worker-owned Enterprises, such as cooperatives? If so, please describe any material benefits of, and/or restrictions on, using such forms. | Cooperative Societies may be established in Hong Kong pursuant to the Co-operative Societies Ordinance (Cap. 33). Unlike other corporate forms, a Cooperative Society requires registration with, and approval by, the Registrar of Co-operative Societies (i.e., the Director of Agriculture, Fisheries and Conservation) and must be formed and operated in compliance with the requirements of the ordinance. Cooperative Societies are subject to taxation on assessable profits arising in or derived from Hong Kong from any trade, profession or business performed by the cooperative. |
| Are there unique reporting requirements for Social Enterprises? If there are, please describe them. Please also discuss what government bodies Social Enterprises are required to report to. | There are no unique reporting requirements for Social Enterprises in Hong Kong. Depending on the type of body operating a Social Enterprise, reporting may be required to the Companies Registry, the Licensing Office of the Hong Kong Police’s Societies Office, the Inland Revenue Department, or other agencies, although these requirements are not unique to organizations operating Social Enterprises. |
| In your jurisdiction, has case law and jurisprudence evolved to address Social Enterprises? If there is meaningful jurisprudence around Social Enterprises, please provide some brief examples. | Hong Kong does not have a well-developed case law concerning Social Enterprises, although Hong Kong has a highly developed jurisprudence with respect to the various corporate types which may operate Social Enterprises. Hong Kong also has a well-developed trusts and charities regime. |
| Does your jurisdiction have any ESG requirements for Enterprises generally? If it does, please describe. | No. |
| Does your jurisdiction have any ESG requirements specifically for Social Enterprises? If it does, please describe. | Hong Kong does not have specific ESG requirements for Social Enterprises. |
| Does your jurisdiction have any ESG requirements for investors? If it does, please describe. | No. |
| Are any major investor classes (e.g., pension funds, mutual funds, etc.) required to look at ESG issues when making investment decisions in your jurisdiction? a. If they are, please describe the requirements.b. If they are not, are they permi... | No. |
| What kinds of philanthropic funding do Social Enterprises in your jurisdiction commonly receive (e.g., grants, charitable investment, traditional investment)? | Organizations operating Social Enterprises may receive funding in the forms of grants, charitable investments, traditional investments, business revenue, and government funding. |
| How prevalent, if at all, are new for-profit impact investments in your jurisdiction (e.g. traditional instruments with impact terms, new investment instruments, aggregation with philanthropic capital, community based funding, etc.)? | For-profit impact investing has received significant attention in Hong Kong in recent years, with social-purpose funds established to support Social Enterprises and related activities in Hong Kong, as well as globally in the areas of clean energy, sustainable agriculture, and other topics. |
| What are the types of government funding and support available to Social Enterprises, if any, available in your jurisdiction (e.g., grants, investments, bonds, and guarantees)? a. How difficult is it for Social Enterprises to obtain government... | Through the Home Affairs Department, the Hong Kong Government is active in supporting the growth and good governance of Social Enterprises in Hong Kong. The Department provides seed grants and other support to organizations seeking to operate Social Enterprises through programs including the Enhancing Self-Reliance Through District Partnership Programme; the Enhancing Employment of People with Disabilities through Small Enterprise; and the Social Innovation and Entrepreneurship Development Fund. |
| Are there any companies that are formed as a Social Enterprise listed on your jurisdiction’s leading securities exchange(s)? | No. |
| To what extent are publicly traded Enterprises required to disclose ESG related factors in annual reports/public filings in your jurisdiction. | The Hong Kong Stock Exchange’s Listing Rules require certain mandatory ESG disclosures to be made by listed companies. |
| How prevalent, if at all, are impact bonds in your jurisdiction? | Impact bonds are not yet prevalent in Hong Kong. |
| In your jurisdiction, are there any restrictions on foreign investments or donations that are unique to Social Enterprises (whether incorporated as for profit entities or as Nonprofits)? | No. |
| Is “crowdfunding” legal in your jurisdiction? Are there rules under applicable securities laws that make it easier for smaller businesses or Social Enterprises to take money from investors that are not sophisticated/accredited/qualified under a... | Dealers in securities, including sites offering equity crowdfunding, must be licensed by the Hong Kong Securities and Futures Commission (SFC), unless subject to an exemption (e.g., offerings to professional investors and certain small-scale offerings). To date, the SFC has not licensed a major crowdfunding operator offering securities to retailer investors in Hong Kong. |
| Are there any tax exemptions that are uniquely available for Social Enterprises? a. Please describe any tax exemptions that are available and whether they are partial or full.b. Are they dependent on the Social Enterprise utilized using a spe... | No. |
| Are individuals or other organizations able to provide tax deductible donations to for-profit Social Enterprises? If they are, please describe any restrictions applicable to tax deductible donations? | Tax deductions are available only for donations to a charity that is exempted from tax under Section 88 of the Inland Revenue Ordinance or to the Hong Kong Government for charitable purposes. |
| Are there any other tax benefits uniquely available for Social Enterprises? (e.g. deferrals, favorable tax rates, business deductions, etc.) | No. |
| Does your jurisdiction provide for reciprocal recognition of tax-exempt status that has been granted under the law of any other jurisdictions? | No. |
| Does your jurisdiction have Regulatory Sandboxes or similar policy frameworks for Social Enterprises? If it does, please describe. | No. |
| What government operational support, resources, training or services, are available for small businesses or Social Enterprises? | As noted above, through the Home Affairs Department, the Hong Kong Government is active in supporting the growth and good governance of Social Enterprises in Hong Kong. The Department provides seed grants and other support through targeted programs to organizations seeking to operate Social Enterprises, makes available written resources online at SEHK.Gov.HK, operates a hotline for Social Enterprises, and conducts training, among other programs. |
| Are there different compliance requirements for different types of Social Enterprises than for traditional Enterprises? Please provide examples if there are. | No. |
| Is there a dedicated government agency or department that oversees Social Enterprises? If there is, please describe its mandate and effectiveness. | Although there is no mandatory regime for Social Enterprises, the Hong Kong Government’s Home Affairs Department provides support and resources for the development of Social Enterprises in Hong Kong. |
| Is there a different bankruptcy system available for Social Enterprises? | No. |
| What are the average time and filing fees to form an Enterprise in your jurisdiction? | Formation of a limited liability company through the Companies Registry generally is a fairly straightforward process, with same-day processing available for online applications and hard copy applications processed within several working days, although the full process of incorporating a company may take longer. Information about fees is available at: https://www.cr.gov.hk/en/services/fees.htm. Opening a bank account in Hong Kong for a newly incorporated company can be a lengthy and time consuming process.
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| What government or third-party certifications or accreditations, if any, are available for Social Enterprises that allow for access to benefits e.g. funding, beneficial tax status, etc.? Please provide examples and briefly describe them as well... | There are no certifications or accreditations that entitle Social Enterprises in Hong Kong to specific benefits. There are accreditation schemes developed by organizations such as the Hong Kong General Chamber of Social Enterprises (HKGCSE), although these are not universally adopted. For instance, the HKGCSE’s Enterprise Endorsement (SEE) Mark scheme was introduced in 2014 with the intention of enhancing public recognition of social enterprise’s value and to strengthen public trust in social enterprises, while improving social enterprises’ operations and effectiveness. Accredited enterprises are permitted to display the SEE Mark logo in promotional materials and physical establishments and are identified in a directory published by the HKGCSE. |
| Please describe whether, in your opinion, startups and other entrepreneurial Enterprises generally can easily form and flourish in your jurisdiction. | Yes, Hong Kong has a generally business-friendly and entrepreneurial environment that is conducive to the formation and success of Enterprises of all types. |
| Please describe whether, in your opinion, Social Enterprises, in particular, can easily form and flourish in your jurisdiction. | Yes, many of the same factors that enable Hong Kong’s startup community also benefit Social Enterprises, in addition to its ample financial and human resources. |
| Please describe whether in your opinion there are any laws that are obstructive to the formation of Social Enterprises (i.e. that actively disfavor or penalize, or otherwise discourage their formation) in your jurisdiction (for example, are Soc... | No, although Social Enterprises may benefit from the continued development of specific legal forms for Social Enterprises in Hong Kong. |
| In your jurisdiction, are there any major fraud concerns or defects due to corruption or fraud that should be addressed? If there are, please briefly discuss the concerns or defects. | No. |
| What changes to the law do you think would be most beneficial to enabling Social Enterprises to flourish in your jurisdiction? | Subject to appropriate regulation, Social Enterprises in Hong Kong could benefit from the expansion of licenses for crowdfunding operators and other funding mechanisms to offset prohibitively high operating costs in some areas of the city. |
| What changes to the law do you think would be most beneficial to enhancing the social and environmental responsibility of Enterprises generally (whether or not Social Enterprises)? | Given Hong Kong’s importance for capital markets, the continued development of ESG standards and disclosure requirements for public companies would further enhance Hong Kong’s positive influence on promoting ESG-minded governance. |
| Is there anything else you would like to add or guidance you would like to provide? Are there any questions we should have asked but did not? | No. |
Social Enterprise Law Surveys
Hong Kong, SAR, People’s Republic of China
Of the five types of companies authorized under the Hong Kong Companies Ordinance (Cap. 622), two are most commonly used for for-profit activities:
- Private Company Limited by Shares: A form of limited liability company whose share capital is divided by shares among its shareholders. The liability of the members is limited to the outstanding amount (if any) on any shares held by the members.
- Public Company Limited by Shares: A limited liability company that is publicly listed, whose capital is divided by shares, and which is permitted more than 50 shareholders.
a. Enterprises seeking financing from investors that will have multiple owners typically will utilize the Private Company Limited by Shares and the Public Company Limited by Shares forms.
b. Hong Kong law does not contain any special provisions for Social Enterprises, and Social Enterprises may be operated by any type of legal entity in Hong Kong. A Social Enterprise is generally regarded as one having both a commercial and a social aim.
The Private Company Limited by Shares and Private Company Limited by Guarantee (discussed below) are often used to operate Social Enterprises in Hong Kong. Social Enterprises may also be operated by Hong Kong charities.
While it is not mandatory for all companies to have object clauses in their constitutional documents, a company operating a Social Enterprise may include an object clause containing a social objective and is required to do so if seeking tax exemption. A Private Company Limited by Shares may also institute “asset lock” and “cap of profit sharing” provisions in its constitutional document to limit the disposal or use of assets for Social Enterprise purposes and the distribution of profits to shareholders. Generally speaking, companies in Hong Kong are not prohibited from prioritizing interests other than shareholder value, although specific rules may apply in circumstances such as insolvency and restructuring.
Hong Kong does not have a corporate form specifically designed for Social Enterprises.
Generally speaking, Social Enterprises may be operated by any type of corporate body in Hong Kong, including corporations with tax exempt status under Section 88 of the Inland Revenue Ordinance.
The Company Limited by Guarantee, which is a limited liability form typically used for charitable and community-based activities, may also operate Social Enterprises and is commonly used for this purpose in Hong Kong. In a Company Limited by Guarantee, the members are liable only for an amount specified in the company’s articles of association.
While both the Company Limited by Guarantee and the Company Limited by Shares are commonly used forms for operating Social Enterprises, tax exemption is more easily afforded to the Company Limited by Guarantee. A Social Enterprise operated by a Company Limited by Shares must fulfill certain requirements, such as prohibiting distributions of income to shareholders and remuneration to directors, among others, in its constitutional documents, to qualify for tax-exempt status under the Inland Revenue Ordinance. A Company Limited by Guarantee with tax-exempt status may also be exempted from obtaining a business registration certificate for the operation of a Social Enterprise.
Societies registered under the Societies Ordinance (Cap. 151) and bodies established by special ordinance may also operate Social Enterprises, although they would not typically exist solely for the purpose of operating a Social Enterprise.
Generally, Nonprofits that do not operate Social Enterprises are not treated differently as compared to Nonprofits that operate Social Enterprises.
Cooperative Societies may be established in Hong Kong pursuant to the Co-operative Societies Ordinance (Cap. 33). Unlike other corporate forms, a Cooperative Society requires registration with, and approval by, the Registrar of Co-operative Societies (i.e., the Director of Agriculture, Fisheries and Conservation) and must be formed and operated in compliance with the requirements of the ordinance. Cooperative Societies are subject to taxation on assessable profits arising in or derived from Hong Kong from any trade, profession or business performed by the cooperative.
There are no unique reporting requirements for Social Enterprises in Hong Kong. Depending on the type of body operating a Social Enterprise, reporting may be required to the Companies Registry, the Licensing Office of the Hong Kong Police’s Societies Office, the Inland Revenue Department, or other agencies, although these requirements are not unique to organizations operating Social Enterprises.
Hong Kong does not have a well-developed case law concerning Social Enterprises, although Hong Kong has a highly developed jurisprudence with respect to the various corporate types which may operate Social Enterprises. Hong Kong also has a well-developed trusts and charities regime.
No.
Hong Kong does not have specific ESG requirements for Social Enterprises.
No.
No.
Organizations operating Social Enterprises may receive funding in the forms of grants, charitable investments, traditional investments, business revenue, and government funding.
For-profit impact investing has received significant attention in Hong Kong in recent years, with social-purpose funds established to support Social Enterprises and related activities in Hong Kong, as well as globally in the areas of clean energy, sustainable agriculture, and other topics.
Through the Home Affairs Department, the Hong Kong Government is active in supporting the growth and good governance of Social Enterprises in Hong Kong. The Department provides seed grants and other support to organizations seeking to operate Social Enterprises through programs including the Enhancing Self-Reliance Through District Partnership Programme; the Enhancing Employment of People with Disabilities through Small Enterprise; and the Social Innovation and Entrepreneurship Development Fund.
No.
The Hong Kong Stock Exchange’s Listing Rules require certain mandatory ESG disclosures to be made by listed companies.
Impact bonds are not yet prevalent in Hong Kong.
No.
Dealers in securities, including sites offering equity crowdfunding, must be licensed by the Hong Kong Securities and Futures Commission (SFC), unless subject to an exemption (e.g., offerings to professional investors and certain small-scale offerings). To date, the SFC has not licensed a major crowdfunding operator offering securities to retailer investors in Hong Kong.
No.
Tax deductions are available only for donations to a charity that is exempted from tax under Section 88 of the Inland Revenue Ordinance or to the Hong Kong Government for charitable purposes.
No.
No.
No.
As noted above, through the Home Affairs Department, the Hong Kong Government is active in supporting the growth and good governance of Social Enterprises in Hong Kong. The Department provides seed grants and other support through targeted programs to organizations seeking to operate Social Enterprises, makes available written resources online at SEHK.Gov.HK, operates a hotline for Social Enterprises, and conducts training, among other programs.
No.
Although there is no mandatory regime for Social Enterprises, the Hong Kong Government’s Home Affairs Department provides support and resources for the development of Social Enterprises in Hong Kong.
No.
Formation of a limited liability company through the Companies Registry generally is a fairly straightforward process, with same-day processing available for online applications and hard copy applications processed within several working days, although the full process of incorporating a company may take longer. Information about fees is available at: https://www.cr.gov.hk/en/services/fees.htm. Opening a bank account in Hong Kong for a newly incorporated company can be a lengthy and time consuming process.
There are no certifications or accreditations that entitle Social Enterprises in Hong Kong to specific benefits. There are accreditation schemes developed by organizations such as the Hong Kong General Chamber of Social Enterprises (HKGCSE), although these are not universally adopted. For instance, the HKGCSE’s Enterprise Endorsement (SEE) Mark scheme was introduced in 2014 with the intention of enhancing public recognition of social enterprise’s value and to strengthen public trust in social enterprises, while improving social enterprises’ operations and effectiveness. Accredited enterprises are permitted to display the SEE Mark logo in promotional materials and physical establishments and are identified in a directory published by the HKGCSE.
Yes, Hong Kong has a generally business-friendly and entrepreneurial environment that is conducive to the formation and success of Enterprises of all types.
Yes, many of the same factors that enable Hong Kong’s startup community also benefit Social Enterprises, in addition to its ample financial and human resources.
No, although Social Enterprises may benefit from the continued development of specific legal forms for Social Enterprises in Hong Kong.
No.
Subject to appropriate regulation, Social Enterprises in Hong Kong could benefit from the expansion of licenses for crowdfunding operators and other funding mechanisms to offset prohibitively high operating costs in some areas of the city.
Given Hong Kong’s importance for capital markets, the continued development of ESG standards and disclosure requirements for public companies would further enhance Hong Kong’s positive influence on promoting ESG-minded governance.
No.