• Pratham Dave

CONTRIBUTION OF VARIOUS FUNDS BY COMPANIES

#companiesact2013

#charitablefunds

#politicalfunds

#defencefunds

#companylaw

#corporatepractice

#complainces


INTRODUCTION:


Generally, many companies do contribute in different forms and various sectors. The purpose of the contribution by the company is to maintain the goodwill of the company and maintain corporate social responsibility.


TYPES OF FUNDS:


There are three categories in which the companies are contributing the funds. They are as follows:

  • Company to Contribute to bona fide and Charitable Funds. [Section 181 of The Companies Act,2013]

  • Prohibitions and Restrictions regarding the political contributions. [Section 182 of The Companies Act,2013]

  • Power of Board and other provisions to make Contributions to the National Defence Fund [Section 183 of The Companies Act,2013]


CHARITABLE FUNDS:


To begin with the contribution to a bonafide and charitable fund, it is stated under the provisions of the company law that all/any type of company can contribute to the charitable funds.


LIMITATION:

There is a particular limit to contribute the funds which is authorised to the Board of Directors.

In the category of charitable funds, the companies can contribute up to five percent of the aggregate net profit of the previous three years.

If the aggregate contribution is up to the limit [i.e., 5 percent of the average net profit of previous years], then the board can bypass the board resolution.

If the aggregate contribution amount in any financial year is exceeding the limits specified for the board, then there is a requirement of the shareholder’s approval for such contribution and to bypass the ordinary resolution.

ILLUSTRATION:

To illustrate that, let us assume that the average of the net profit is 2,00,000 INR and multiply it with 5 percent [the limit] is equal to the 10,000 INR and after that the board will bypass the board resolution.

This statutory provision [Section 181 of the Companies Act, 2013] is applied to the public companies as well as the private companies.


POLITICAL FUNDS:


To begin with the contribution to a Prohibitions and Restrictions regarding the political contributions., it is stated under the provisions of the company law that all/any type of company can contribute to this funds.


LIMITATION:

All type of companies can do political contributions without any type of limit. The contribution can be done in the form of either directly or indirectly.

However, few companies are excluded, they are as follows:

· A Government company;

· A Company which has been in the existence for less than three financial years.


DEEMED POLITICAL CONTRIBUTION:

The term “Deemed Political Contribution” means in which the company is contributing the funds in an indirect manner.

DISCLOSURE OF THE CONTRIBUTED AMOUNT:

There is a requirement to give a disclosure of the given contributed amount in the profit and loss account under the section181(3).

It is to be addressed like “total amount contributed by it” under section 182 during the financial year to which the account relates.


MODES OF CONTRIBUTION:

· By an account payee cheque drawn on a bank; or

· By an account payee bank draft; or

· By using electronic clearing system through a bank account; or

· Through any instrument, issued pursuant to any scheme notified under any law for the time being in force, for contribution to the political parties.


PUNISHMENT FOR CONTRAVENTION:

If the contravention is committed, then there are certain punishments, they are as follows:

· The company is entitled to pay the fine up to the five times the amount of the contribution made.

AND

· Every defaulting officer is punishable with imprisonment up to six months and with fine up to five times the amount of contribution made.

Without limiting the breadth of the political party contribution, the following transactions are to be treated as political party contributions.


A donation, subscription, or payment made by a company on its behalf or on its account to a person who, to the best of its knowledge, is carrying on any activity that, at the time such donation, subscription, or payment was made, can reasonably be regarded as likely to affect public support for a political party shall also be considered to be a contribution of the amount of such donation, subscription, or payment to such person for a political purpose.


The amount of expenditure incurred, directly or indirectly, by a company on an advertisement in any publication, whether a souvenir, brochure, tract, pamphlet, or the like, shall also be deemed.


NATIONAL DEFENCE FUNDS:


To begin with the Power of Board and other provisions to make Contributions to the National Defence Fund., it is stated under the provisions of the company law that all/any type of company can contribute to this fund.


When the power of boards or other persons wishes to contribute to the defence fund, then there is requirement to get the approval of the Central Government.


LIMITATION:

There is not any limitation to contribute to the national defence funds


OVERRIDING EFFECT:

There can’t be imposed any type of restrictions on this type of category. The Board of directors or any person or any authority can exercise the powers of the Board of Directors or of the company in the general meeting.


There is a requirement to disclose the total amounts or amounts contributed by it to the National Defence fund or any other approved fund.



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