Overview

The Companies Act, 2013 regulates a company's power to donate or contribute to various causes to ensure accountability, transparency, and prevent misuse of shareholders' funds. Contributions to charitable funds, political parties, and defence funds are governed by separate sections.

1. Contributions to Charitable and Other Funds — Section 181

• A company may contribute to bona fide charitable and other funds (including welfare of employees, public amenities, etc.) provided such contribution is authorised by the company's Board of Directors.
• If the aggregate contribution in any financial year exceeds 5% of average net profits of the preceding 3 financial years, prior approval of shareholders in a General Meeting is required.
• Contributions must be disclosed in the financial statements.

2. Contributions to Political Parties — Section 182

• A company (other than a government company and a company in existence for less than 3 financial years) may contribute to any political party or for political purposes.
• Maximum permissible: 7.5% of average net profits during the immediately preceding 3 financial years.
• Requires a Board Resolution authorising the contribution.
• Contribution must be disclosed separately in the Profit and Loss Account showing the name of each political party to which the contribution is made.
• Contravention attracts a fine up to 5 times the amount contributed; directors who gave the consent are punishable with imprisonment up to 6 months plus fine.

3. Contributions to National Defence Fund — Section 183

• The Board of Directors may authorise contribution to the National Defence Fund or any other fund approved by the Central Government for national defence.
• There is no monetary limit on the amount that can be contributed to the National Defence Fund — the Board may contribute any amount it deems fit.
• Every contribution must be disclosed in the company's Profit and Loss Account for the financial year in which it is made.