Contribution by companies under Companies Act, 2013

Contribution:-

The general meaning of the word contribution means to donate, to gift or a payment made to a common fund.

The word denotes that there is no Liability and it is voluntarily donating the money for a common cause.

Lets look at the provisions of Companies Act, 2013 with respect to "Contribution".

The Act does not define the word "Contribution". This article covers the Voluntary contribution made by the Companies.

The Companies Act, 2013 talks about 3 types of Voluntary Contribution. Chapter XII  dealing with the Power of the Board explains the contributions under the following sections:

Section 181- Contribution to Bona fide  and Charitable Funds etc.

Section 182- Political Contribution.

Section 183- Contribution to National Defence Fund, etc.

Powers:-

As the provisions relating to Contribution comes under the Chapter XII dealing with Board powers, it is clear that the power to contribute the money of the company vests under the Board of Directors. 

Lets look in detail about the various contributions :

Section 181- Contribution to Bona fide  and Charitable Funds etc.

The act empowers that the Board of a company may contribute to Charitable funds, provided the "Aggregate amount of contribution in a Financial year does not exceed 5% of Average Net Profit of 3 immediately preceding Financial years". The board approval may be sought either at the meeting of the Board or by way of Circular Resolution as the act is silent with regard to this. 

If the above said limit exceeds, the Shareholders approval is required by way of a general meeting.

Section 182- Political Contribution.

The act is partial with respect to Political contribution and it provides certain restrictions in contributing to political parties. They are,

"A Company which is not a Government Company and which has been in existence for more than 3 years may contribute directly/indirectly to any political party." This clearly implies that Government companies and new companies cannot contribute to political parties.

The reason behind providing such a restriction is that no company should be formed with a sole motive of encouraging political contribution. Though the growth and fund needs of political parties are met by way of such contribution by the Corporates. 

In one Financial Year, the Aggregate Contribution shall not exceed 7.5% of Average Net Profit of 3 immediately preceding Financial years and such a contribution must be approved by the board of directors at the meeting of the Board.

Disclosures to be made in the Profit/Loss Account about Name of the political party and the amounts contributed by the company during the Financial Year to which the Account relates.

Contravening the provisions relating to disclosure in Financials is a punishable offence and the punishment is "payment of fine extending to 5 times the amount contributed and the Officer in Default is punishable with Imprisonment upto 6 months and Penalty. 

Section 183- Contribution to National Defence Fund, etc.

The act provides that a company may contribute to National Defence Fund/ any other fund for Defence purpose. There is No Limit for contribution. 

There is an overriding provision with respect to this contribution. Neither act nor any other law for the time being in force nor the Memorandum, Articles or any other document relating to the company can restrict this Contribution. 

The Board/any person/Authority which exercises the powers of the Board/ the company in general meeting can contribute to the National defence fund. 

Disclosure to be made in the Profit/Loss account of the company during the Financial year in which such contribution is made. 

All the above contributions are voluntary contributions of the company intended for the larger benefit of the society and Nation. The Act does not mandate such donations by the company. These provisions were present int eh Companies Act, 1956 too. The above said powers are primarily exercisable by the board and only when the contribution exceeds the specified limits the Members approval in General Meeting is required.