Charity Governance HK: Cap. 112 s.88 and Cap. 622 Pack

The pack sits one level below your governing instrument. Your articles, society constitution or trust deed, whichever of the Hong Kong non-profit formation documents you started from, states the charitable objects and locks the assets to them. The pack is what the governing body adopts by resolution to make those clauses work week to week: the size and term of the committee, the notice period and quorum for meetings, the standard of minute taking, the annual declaration signed by every member, the register in which interests are recorded, and the reserves policy explaining why the organisation holds the money it holds.

Boards often confuse the pack with a staff code of conduct. A code of conduct binds employees through their contracts and deals with gifts and outside work. The governance pack binds the people who owe fiduciary duties to the charity, and those duties bite whether or not anyone signs anything. A director who has never signed a declaration is still liable for a breach of the duty to avoid conflicts. The declaration proves that the board asked the question, recorded the answer and acted on it.

There is no statutory definition of charity in Hong Kong. The law rests on case law, and the authority applied by the local courts remains Lord Macnaghten's classification in Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531. Recognition comes through section 88 of the Inland Revenue Ordinance (Cap. 112), administered by the Inland Revenue Department, which publishes the Tax Guide for Charitable Institutions and Trusts of a Public Character. Two paragraphs of that guide drive this pack. Paragraph 17(d) expects a clause prohibiting members of the governing body from receiving remuneration; paragraph 17(e) expects a clause requiring them to disclose material interests and to abstain from voting on any transaction in which they are interested. The Inland Revenue Department guidance on the clauses a charity's governing instrument should contain lists the rest.

For a company limited by guarantee the Companies Ordinance (Cap. 622) adds a statutory layer. Section 465 imposes a duty of reasonable care, skill and diligence on a mixed objective and subjective test. Section 536 requires a director to declare the nature and the extent of a material interest in a transaction, under a procedure set out in sections 537 to 542 and extended to shadow directors by section 540. Section 482 makes minutes signed by the chairperson evidence of the proceedings, and section 618 requires records of resolutions and meetings to be kept for at least 10 years. The pack is drafted alongside the articles of association for a Hong Kong company limited by guarantee, never in isolation.

Registered societies answer to the Societies Officer under the Societies Ordinance (Cap. 151), with no separate legal personality and no statutory declaration regime. Two further statutes reach every charity: section 9 of the Prevention of Bribery Ordinance (Cap. 201), under which a committee member who accepts an advantage without permission commits an offence, and the Personal Data (Privacy) Ordinance (Cap. 486), which governs how long the register may keep data about members and their relatives.

The most common trigger is a section 88 application. The Department asks for the governing instrument, the list of the governing body and a description of activities, and an applicant who can produce a signed declaration and a minuted board policy answers the reviewer's questions before they are put. The second trigger arrives years later, when the Department calls for accounts to confirm that operations remain charitable. Recognition is not permanent. Where a charity is found to be operating outside its stated objects, exemption can be withdrawn and tax assessed for the years concerned.

Related party transactions cause the most damage. A charity that rents premises from a company controlled by a director or engages the founder's accountancy practice needs a written procedure that existed before the transaction, not one drafted afterwards.

Two edge cases deserve attention. A founder led charity whose founder is at once the largest donor, the chairperson and the landlord is not improper in itself, but each role has to be declared and the founder has to be out of the room for every decision touching it. And a member sitting on two organisations bidding for the same grant holds a conflict of loyalty rather than a financial interest, a case most imported policies never address.

• The terms of reference of the governing body fix the size of the board, the maximum term of office and the matters reserved to it: normally the annual financial statements, any related party transaction and any proposal to amend the objects clause, the point most founder led organisations leave undefined.
• The notice, quorum and minute taking rules set the notice required for a board meeting, the number of members who make a quorum and who signs the minutes. The signature block follows section 482 of the Companies Ordinance (Cap. 622), so signed minutes stand as evidence of the proceedings.
• The annual declaration of interests is a signed schedule covering directorships, employments, professional practices, controlling shareholdings and the interests of spouses, children, parents and business partners, refreshed each financial year and whenever a member's position changes.
• The recusal procedure tells a conflicted member what to do in the meeting: declare the nature and the extent of the interest before discussion opens, withdraw, and be excluded from the quorum on that item. The drafting tracks section 536 and the disclosure clause the Department expects.
• The register of interests is the standing record kept between meetings, with columns for the date of declaration, the nature and extent of the interest, the decision taken and the date it ceased. Board papers raise the same confidentiality question, which is why boards pair the register with a Hong Kong confidentiality agreement for board and donor information.
• The reserves policy states the target range of free reserves in months of operating expenditure, the reasoning behind it and the review cycle. A charity that accumulates reserves without explaining the purpose invites the question whether its income is genuinely applied to its objects.

Companies limited by guarantee carry the heaviest load, because the duties in Cap. 622 sit on top of the charity requirements. Directors appear on the Companies Register, file annual returns and financial statements, and declare interests to the board rather than to the Registrar. A guarantee company licensed under section 103 to omit "Limited" from its name faces closer scrutiny of its objects, since the licence rests on the promotion of charity, religion, art or another useful object.

Registered societies operate under lighter regulation and heavier personal risk. A society has no separate legal personality, so office bearers can be exposed personally on its contracts, and nothing equivalent to section 536 applies. Everything depends on the constitution and on the policies the committee adopts, which makes a written recusal procedure more important here, not less.

Subvented NGOs answer to a funder as well as to the Department. A Funding and Service Agreement with the Social Welfare Department brings its Best Practice Manual into play, with reporting on reserves held against subvention income, and these boards face the most questions about staff connected to committee members. The pack therefore sits beside the organisation's employment and HR documents under the Employment Ordinance.

Charitable trusts work through trustees under the Trustee Ordinance (Cap. 29) and the terms of the deed. The rule against unauthorised profit is strict, and a trustee who takes a benefit without express authority must account for it. Authorisation must come from the deed itself, because a board resolution cannot create a power the instrument never granted.

You start by identifying the legal form, because the pack adapts its language to a company limited by guarantee, a registered society or a charitable trust, and the terminology shifts between directors, office bearers and trustees. The form then asks for the name of the organisation, its company or business registration number, the charity file reference if exemption has been granted, and the size and quorum of the governing body. From there you set the notice period, the number of ordinary meetings and the review cycle for declarations.

The conflict of interest section asks how far connected persons should reach, since some boards stop at spouses and children while others extend to parents, siblings and business partners. You then choose whether a conflicted member withdraws or merely abstains, and whether the register is open to members on request. The completed pack downloads in Word and PDF, ready to be tabled and adopted by resolution alongside the other board resolutions and incorporation documents for Hong Kong companies.

The commonest error is declaring the interest after the decision. A note in the minutes that a director had an interest, recorded once the vote has happened, proves the opposite of what it is meant to prove. The declaration has to come before the discussion, and the minutes must show the sequence: declaration, withdrawal, decision by the others. The second error is a quorum that collapses under its own policy. A board of five with a quorum of three finds that two recusals leave it unable to decide anything, so the pack says what happens next, usually a referral to the members in general meeting.

Three further mistakes recur. Charities copy a policy from an overseas parent and import references to a charity regulator that does not exist here. They treat conflicts as purely financial and miss duality of interest, where a member sits on two organisations chasing the same funder. And they keep the register in a spreadsheet nobody updates, which is worse than keeping none at all, because it evidences a system the board is not operating.