Section 181 of the Companies Act, 2013
Here is a detailed explanation of Section 181 of the Companies Act, 2013:
📘 Section 181 – Company’s Power to Contribute to Charitable and Other Funds
This section empowers a company to make contributions or donations to bona fide charitable and other funds, subject to certain limits and conditions.
🔍 Key Provisions of Section 181
🏢 1. Applicability
Applicable to all companies, whether private or public.
💰 2. Board's Power to Contribute
The Board of Directors may contribute to:
Bona fide charitable funds, or
Other funds, not directly related to the business of the company.
📊 3. Limit on Contribution (without shareholders' approval)
The Board can contribute up to 5% of the average net profits of the company from the 3 immediately preceding financial years.
🗳️ 4. Approval Required for Exceeding Limit
If the company wants to contribute more than 5%, it must pass a resolution in the general meeting (i.e., get approval from shareholders).
📝 Important Notes
"Charitable purpose" is interpreted broadly and can include education, medical aid, rural development, etc.
These contributions must be disclosed in the Board’s report.
⚖️ Purpose of Section 181
To allow companies to engage in corporate social responsibility (CSR)-like activities,
While ensuring shareholder oversight if large sums are involved.
🔸 Note: For companies covered under CSR provisions (Section 135), contributions to CSR activities must be made under that section, not Section 181.
✅ Summary Table
| Item | Provision |
|---|---|
| Who can contribute? | Board of Directors |
| Limit without approval | Up to 5% of average net profit of last 3 years |
| Exceeding limit | Requires shareholders’ approval by resolution |
| Applicability | All companies |
| Disclosure | In Board's Report |
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