When a private company has only two shareholders, the quorum for a general meeting is usually defined by the company’s Articles of Association. Here’s what you should know: Standard Quorum Requirements:Typically, the Articles specify that at least two members must be present to form a quorum. In a tRead more
When a private company has only two shareholders, the quorum for a general meeting is usually defined by the company’s Articles of Association. Here’s what you should know:
Standard Quorum Requirements: Typically, the Articles specify that at least two members must be present to form a quorum. In a two-shareholder company, if one shareholder is absent, the quorum is not met, and the meeting cannot proceed as a valid AGM.
Adjourned Meetings: Even if a meeting is adjourned and reconvened, the quorum requirement remains the same unless the Articles explicitly provide that a lower quorum (for example, one member) is acceptable for the adjourned meeting.
Custom Provisions in Articles: Some companies may have provisions allowing a single shareholder to constitute a quorum during an adjourned meeting. It’s essential to review the Articles of Association to determine if such an exception applies.
Key Takeaway:
Unless the company’s Articles specifically allow for a lower quorum (such as one member) during an adjourned meeting, the attendance of just one shareholder in a company with only two shareholders does not meet the quorum requirement
Yes, a shareholder who casts an e-vote can still attend the general meeting and participate in discussions. However, there are a couple of important points to keep in mind: Participation in the Meeting: Using the e-voting facility does not bar you from physically attending the meeting. You can joinRead more
Yes, a shareholder who casts an e-vote can still attend the general meeting and participate in discussions. However, there are a couple of important points to keep in mind:
Participation in the Meeting:
Using the e-voting facility does not bar you from physically attending the meeting.
You can join the meeting, ask questions, and contribute to discussions even after casting your e-vote.
Changing Your Vote:
Typically, once an electronic vote is successfully submitted, it is considered final.
Most companies do not allow a vote change after it has been recorded.
Exception: Some companies may offer a specific time window or mechanism (like a “revote” option) if you wish to change your vote before the final tally. It’s essential to check your company’s specific e-voting guidelines
Yes, the concept of proxy remains relevant even when an electronic voting (e-voting) facility is available at a general meeting. Why Proxy Still Matters: Statutory Right:The right to appoint a proxy is a statutory provision under the Companies Act, 2013. It allows shareholders who cannot attend theRead more
Yes, the concept of proxy remains relevant even when an electronic voting (e-voting) facility is available at a general meeting.
Why Proxy Still Matters:
Statutory Right: The right to appoint a proxy is a statutory provision under the Companies Act, 2013. It allows shareholders who cannot attend the meeting in person or use the e-voting system to delegate their voting rights to another person.
E-Voting and Proxy Coexist: E-voting is an additional option that enhances convenience and participation. However, not every shareholder may be able or willing to use e-voting. In such cases, appointing a proxy remains an important alternative.
Flexibility for Shareholders: The availability of both methods gives shareholders flexibility. If a shareholder faces technical difficulties with e-voting or prefers to have someone represent their vote, they can still opt for the traditional proxy mechanism.
Yes, the quorum provisions under Section 103 of the Companies Act, 2013 remain in force regardless of whether electronic voting is used. Here's what you need to know: Understanding the Quorum Requirement Section 103 Requirement:This section specifies that a minimum number of directors must be presenRead more
Yes, the quorum provisions under Section 103 of the Companies Act, 2013 remain in force regardless of whether electronic voting is used. Here’s what you need to know:
Understanding the Quorum Requirement
Section 103 Requirement: This section specifies that a minimum number of directors must be present at a board meeting for it to be valid. The quorum is typically defined as one‑third of the total number of directors (or two directors, whichever is higher).
Electronic Participation: The Companies (Meetings of Board and its Powers) Rules, 2014 allow directors to participate via video conferencing or other electronic means. Such participation is generally treated as equivalent to physical presence for the purpose of meeting the quorum requirement.
When Physical Presence May Still Be Necessary
Specified Requirements in the Articles: If a company’s Articles of Association or Board resolutions specify that certain directors or key personnel must be physically present at meetings, then that requirement must be fulfilled even if electronic voting is used.
Critical Decisions: In some cases, for highly sensitive or significant decisions, companies may choose to require physical attendance to ensure robust deliberation and participation.
Key Takeaway
General Rule: Electronic participation (including electronic voting) satisfies the quorum requirements as long as the minimum number of directors is present—whether physically or via video conferencing.
Exceptions: If there is a specific provision in the company’s governing documents that mandates physical presence for certain roles or decisions, then those conditions must be met.
Under the Companies Act, 2013 and the subsequent rules framed thereunder, companies are required to maintain certain documents, records, registers, and minutes in electronic form. However, the requirement varies depending on the nature of the document and the applicable provisions. Key Points: StatuRead more
Under the Companies Act, 2013 and the subsequent rules framed thereunder, companies are required to maintain certain documents, records, registers, and minutes in electronic form. However, the requirement varies depending on the nature of the document and the applicable provisions.
Key Points:
Statutory Registers and Records: The Companies (Management and Administration) Rules, 2014 and other related guidelines mandate that companies maintain key statutory registers, such as registers of members, directors, and minutes of meetings, in an electronic format or in a manner that can be easily converted to electronic form.
Ease of Access and Disclosure: Electronic maintenance of records helps ensure quick access, transparency, and timely disclosure of information as required by regulatory authorities, including the Registrar of Companies (RoC).
Compliance Requirements:
Companies are expected to adopt electronic record-keeping systems that ensure the integrity and confidentiality of data.
While physical copies may still be maintained for some documents, they must be readily available for conversion into electronic form upon request by the authorities.
Conclusion:
Yes, it is mandatory for companies to maintain their key documents, records, registers, and meeting minutes in electronic form or in a format that can be easily converted to electronic form, in accordance with the Companies Act, 2013 and its associated rules. This requirement supports transparency, accessibility, and compliance with statutory obligations.
Yes, shareholders can reclaim shares that have been transferred to the Investor Education and Protection Fund (IEPF). Typically, if dividends on shares remain unclaimed for seven consecutive years, both the unclaimed dividends and the corresponding shares are transferred to the IEPF. Fortunately, shRead more
Yes, shareholders can reclaim shares that have been transferred to the Investor Education and Protection Fund (IEPF). Typically, if dividends on shares remain unclaimed for seven consecutive years, both the unclaimed dividends and the corresponding shares are transferred to the IEPF. Fortunately, shareholders have the option to claim these shares back.
How to Reclaim Your Shares:
File an Online Application:
Log on to the official IEPF website and fill out Form IEPF-5 to initiate your claim.
Submit the Necessary Documents:
After submitting the online form, print the acknowledgment, sign it, and send it along with all required documents (like bank statements, share certificates, etc.) to your company’s Nodal Officer at its registered office.
Verification by the Company:
The company will verify your claim and forward a verification report to the IEPF Authority within 15 days of receiving your documents.
Refund Processing:
Once verified, the IEPF Authority will process your claim and transfer the reclaimed shares back to you electronically.
Note: If you are a legal heir, successor, nominee, or administrator, you must submit an affidavit in surety along with your claim.
Under the Companies Act, 2013, the primary responsibility for signing financial statements lies with the Board of Directors. Here’s a comprehensive overview of who is required to sign and the roles of other key officers such as the CFO and Company Secretary: 1. Mandatory Signatures by the Board of DRead more
Under the Companies Act, 2013, the primary responsibility for signing financial statements lies with the Board of Directors. Here’s a comprehensive overview of who is required to sign and the roles of other key officers such as the CFO and Company Secretary:
1. Mandatory Signatures by the Board of Directors
Directors’ Signatures:
Section 129 requires that the Balance Sheet, Profit & Loss Account, and other financial statements be signed on behalf of the Board of Directors.
Section 134 mandates that the accompanying Director’s Report is signed by the directors.
Depending on the company’s Articles of Association, if there is more than one director, at least two directors may be required to sign; if there is only one director, that director must sign.
Auditor’s Signature:
The independent auditor must sign the auditor’s report attached to the financial statements.
2. Role of the CFO
Involvement in Preparation:
The Chief Financial Officer (CFO) plays a key role in preparing and reviewing the financial statements.
Signature Requirement:
The Companies Act does not specifically require the CFO to sign the financial statements unless the CFO is also a director or has been specifically designated as a signatory by the Board.
3. Role of the Company Secretary (CS)
Ensuring Compliance:
The Company Secretary is crucial in ensuring that all statutory filings and compliance requirements are met, including the preparation and timely filing of the Annual Return and other statutory documents.
Signature Requirement:
The CS is not mandated by the Act to sign the financial statements unless they are a director or are specifically authorized by the Board.
4. Digital Signatures and Record-Keeping
Use of Digital Signatures:
Companies may use digital signatures to sign financial statements, provided they meet the regulatory standards set by the Ministry of Corporate Affairs.
Documentation:
All signatures (whether physical or digital) certify that the financial statements represent a true and fair view of the company’s financial position.
Key Takeaways
Directors are Primarily Responsible:
The financial statements must be signed by the Board of Directors and the independent auditor.
CFO and CS Roles:
While the CFO and Company Secretary are critical to the preparation and compliance process, they are not required to sign the financial statements unless they hold a director position or are designated as signatories.
Digital Compliance:
The use of digital signatures is acceptable as long as they adhere to the prescribed standards.
No, activities that a company is required to perform as per its statutory obligations under any law are not considered CSR (Corporate Social Responsibility) activities. Here's why: Nature of CSR:CSR involves voluntary actions taken by a company to promote social welfare and contribute to sustainableRead more
No, activities that a company is required to perform as per its statutory obligations under any law are not considered CSR (Corporate Social Responsibility) activities. Here’s why:
Nature of CSR: CSR involves voluntary actions taken by a company to promote social welfare and contribute to sustainable development, going beyond what is legally required.
Statutory Obligations vs. CSR: Activities mandated by law (such as environmental compliance, mandatory disclosures, or statutory audits) are compulsory business expenses. These are incurred as part of fulfilling legal requirements and do not fall under CSR, which is aimed at additional social initiatives.
Eligible CSR Activities: To qualify as CSR, the expenditure must be on activities listed in Schedule VII of the Companies Act, 2013, and should be undertaken voluntarily to benefit society—such as education, health, rural development, and environmental sustainability projects.
Key Takeaway: Simply put, if an activity is compulsory under any law, it cannot be treated as CSR because it is not a voluntary, extra initiative taken by the company for social good.
When it comes to Corporate Social Responsibility (CSR), it's important to distinguish between core business operations and activities undertaken for social welfare. Here's what you need to know: 1. Core Business vs. CSR Expenditure Core Business Operations:If a corporate group is primarily engaged iRead more
When it comes to Corporate Social Responsibility (CSR), it’s important to distinguish between core business operations and activities undertaken for social welfare. Here’s what you need to know:
1. Core Business vs. CSR Expenditure
Core Business Operations: If a corporate group is primarily engaged in running hospitals or educational institutions as part of its main business, the related expenditures are treated as regular business expenses.
Example: A company that operates a chain of hospitals for profit cannot count its operating costs as CSR expenditure because these expenses are integral to its business operations.
CSR Activities: CSR expenditure is meant for activities that are not part of the regular business but are undertaken for the benefit of society.
Example: If a company donates funds to support an independent hospital or educational institution, or if it initiates additional projects in these sectors that go beyond its regular operations, such expenditure can qualify as CSR spending.
2. Alignment with CSR Guidelines
For any expenditure to be considered CSR:
Purpose: It must align with the social welfare objectives specified in Schedule VII of the Companies Act, 2013.
Distinct Activity: The CSR activity should be separate from the company’s routine business operations.
Documentation: Proper records and board approvals must be maintained to demonstrate that the spending is directed toward social causes rather than profit-making.
Conclusion
Not Considered CSR: Operating hospitals and educational institutions as part of a company’s primary business does not count as CSR expenditure.
Potentially Considered CSR: If a company supports or donates to such institutions outside of its core operations—focusing on social welfare—it may be able to claim that expenditure as CSR, provided it meets the guidelines under Schedule VII.
By clearly separating core business activities from purely philanthropic initiatives, companies can ensure they comply with CSR requirements while maximizing their positive impact on society.
Under Section 135 of the Companies Act, 2013, prescribed companies must spend at least 2% of their average net profits (calculated over the preceding three years) on CSR activities. If a company fails to meet this CSR spending obligation, the following consequences apply: 1. Transfer to Unspent CSRRead more
Under Section 135 of the Companies Act, 2013, prescribed companies must spend at least 2% of their average net profits (calculated over the preceding three years) on CSR activities. If a company fails to meet this CSR spending obligation, the following consequences apply:
1. Transfer to Unspent CSR Account
Mandatory Transfer: The unspent CSR funds must be transferred to a special account called the “Unspent CSR Account” within 30 days from the end of the financial year.
Carry Forward: The funds in this account can be carried forward and must be spent on CSR activities in subsequent years. They remain blocked until they are utilized for eligible CSR projects.
2. Disclosure Requirements
Annual Reporting: Companies are required to disclose details of any unspent CSR funds in their Annual Report and Directors’ Report. This enhances transparency and accountability regarding the CSR activities of the company.
3. Interest on Unspent Funds
Accumulation of Interest: If the funds remain unspent for a prolonged period, the company may be required to account for interest on the unspent amount. This serves as a financial deterrent against the continuous accumulation of unutilized CSR funds.
4. Impact on Corporate Governance
Reputational Concerns: Persistent failure to spend the mandated CSR amount may attract regulatory scrutiny and adversely affect the company’s reputation.
Board Oversight: Directors are expected to monitor CSR spending closely. Repeated non-compliance can reflect poorly on the Board’s oversight and corporate governance practices.
Key Takeaway
While there is no direct monetary penalty for not spending the required CSR amount, the company is compelled to:
Transfer the unspent amount to the Unspent CSR Account,
Carry forward and eventually utilize these funds in future CSR activities, and
Account for interest if the funds remain unspent over time.
If the private company has only 2 shareholders and out of these, if one cannot attend the AGM then according to above, whether one person attending the adjourned AGM, would be taken as quorum?
When a private company has only two shareholders, the quorum for a general meeting is usually defined by the company’s Articles of Association. Here’s what you should know: Standard Quorum Requirements:Typically, the Articles specify that at least two members must be present to form a quorum. In a tRead more
When a private company has only two shareholders, the quorum for a general meeting is usually defined by the company’s Articles of Association. Here’s what you should know:
Standard Quorum Requirements:
Typically, the Articles specify that at least two members must be present to form a quorum. In a two-shareholder company, if one shareholder is absent, the quorum is not met, and the meeting cannot proceed as a valid AGM.
Adjourned Meetings:
Even if a meeting is adjourned and reconvened, the quorum requirement remains the same unless the Articles explicitly provide that a lower quorum (for example, one member) is acceptable for the adjourned meeting.
Custom Provisions in Articles:
Some companies may have provisions allowing a single shareholder to constitute a quorum during an adjourned meeting. It’s essential to review the Articles of Association to determine if such an exception applies.
Key Takeaway:
Unless the company’s Articles specifically allow for a lower quorum (such as one member) during an adjourned meeting, the attendance of just one shareholder in a company with only two shareholders does not meet the quorum requirement
See lessWhether a person who has voted through e-voting facility provided by the company can participate in general meeting? Further, can he change his vote?
Yes, a shareholder who casts an e-vote can still attend the general meeting and participate in discussions. However, there are a couple of important points to keep in mind: Participation in the Meeting: Using the e-voting facility does not bar you from physically attending the meeting. You can joinRead more
Yes, a shareholder who casts an e-vote can still attend the general meeting and participate in discussions. However, there are a couple of important points to keep in mind:
-
- Using the e-voting facility does not bar you from physically attending the meeting.
- You can join the meeting, ask questions, and contribute to discussions even after casting your e-vote.
-
- Typically, once an electronic vote is successfully submitted, it is considered final.
- Most companies do not allow a vote change after it has been recorded.
- Exception: Some companies may offer a specific time window or mechanism (like a “revote” option) if you wish to change your vote before the final tally. It’s essential to check your company’s specific e-voting guidelines
See lessParticipation in the Meeting:
Changing Your Vote:
Whether concept of proxy is relevant in respect of a general meeting wherein e-voting facility has been provided to the members?
Yes, the concept of proxy remains relevant even when an electronic voting (e-voting) facility is available at a general meeting. Why Proxy Still Matters: Statutory Right:The right to appoint a proxy is a statutory provision under the Companies Act, 2013. It allows shareholders who cannot attend theRead more
Yes, the concept of proxy remains relevant even when an electronic voting (e-voting) facility is available at a general meeting.
Why Proxy Still Matters:
-
-
-
See lessStatutory Right:
The right to appoint a proxy is a statutory provision under the Companies Act, 2013. It allows shareholders who cannot attend the meeting in person or use the e-voting system to delegate their voting rights to another person.
E-Voting and Proxy Coexist:
E-voting is an additional option that enhances convenience and participation. However, not every shareholder may be able or willing to use e-voting. In such cases, appointing a proxy remains an important alternative.
Flexibility for Shareholders:
The availability of both methods gives shareholders flexibility. If a shareholder faces technical difficulties with e-voting or prefers to have someone represent their vote, they can still opt for the traditional proxy mechanism.
Whether the provisions of quorum under section 103 requiring specified persons to be physically present need to be complied with even in cases where electronic voting is mandated?
Yes, the quorum provisions under Section 103 of the Companies Act, 2013 remain in force regardless of whether electronic voting is used. Here's what you need to know: Understanding the Quorum Requirement Section 103 Requirement:This section specifies that a minimum number of directors must be presenRead more
Yes, the quorum provisions under Section 103 of the Companies Act, 2013 remain in force regardless of whether electronic voting is used. Here’s what you need to know:
Understanding the Quorum Requirement
Section 103 Requirement:
This section specifies that a minimum number of directors must be present at a board meeting for it to be valid. The quorum is typically defined as one‑third of the total number of directors (or two directors, whichever is higher).
Electronic Participation:
The Companies (Meetings of Board and its Powers) Rules, 2014 allow directors to participate via video conferencing or other electronic means. Such participation is generally treated as equivalent to physical presence for the purpose of meeting the quorum requirement.
When Physical Presence May Still Be Necessary
Specified Requirements in the Articles:
If a company’s Articles of Association or Board resolutions specify that certain directors or key personnel must be physically present at meetings, then that requirement must be fulfilled even if electronic voting is used.
Critical Decisions:
In some cases, for highly sensitive or significant decisions, companies may choose to require physical attendance to ensure robust deliberation and participation.
Key Takeaway
-
-
See lessGeneral Rule:
Electronic participation (including electronic voting) satisfies the quorum requirements as long as the minimum number of directors is present—whether physically or via video conferencing.
Exceptions:
If there is a specific provision in the company’s governing documents that mandates physical presence for certain roles or decisions, then those conditions must be met.
Is it mandatory for a company to keep its documents, records, registers, minutes, etc. in electronic form?
Under the Companies Act, 2013 and the subsequent rules framed thereunder, companies are required to maintain certain documents, records, registers, and minutes in electronic form. However, the requirement varies depending on the nature of the document and the applicable provisions. Key Points: StatuRead more
Under the Companies Act, 2013 and the subsequent rules framed thereunder, companies are required to maintain certain documents, records, registers, and minutes in electronic form. However, the requirement varies depending on the nature of the document and the applicable provisions.
Key Points:
Statutory Registers and Records:
The Companies (Management and Administration) Rules, 2014 and other related guidelines mandate that companies maintain key statutory registers, such as registers of members, directors, and minutes of meetings, in an electronic format or in a manner that can be easily converted to electronic form.
Ease of Access and Disclosure:
Electronic maintenance of records helps ensure quick access, transparency, and timely disclosure of information as required by regulatory authorities, including the Registrar of Companies (RoC).
Compliance Requirements:
Conclusion:
Yes, it is mandatory for companies to maintain their key documents, records, registers, and meeting minutes in electronic form or in a format that can be easily converted to electronic form, in accordance with the Companies Act, 2013 and its associated rules. This requirement supports transparency, accessibility, and compliance with statutory obligations.
See lessWhether all the shares which have been transferred by the company to Investor Education and protection Fund, can be claimed back by the shareholder?
Yes, shareholders can reclaim shares that have been transferred to the Investor Education and Protection Fund (IEPF). Typically, if dividends on shares remain unclaimed for seven consecutive years, both the unclaimed dividends and the corresponding shares are transferred to the IEPF. Fortunately, shRead more
Yes, shareholders can reclaim shares that have been transferred to the Investor Education and Protection Fund (IEPF). Typically, if dividends on shares remain unclaimed for seven consecutive years, both the unclaimed dividends and the corresponding shares are transferred to the IEPF. Fortunately, shareholders have the option to claim these shares back.
How to Reclaim Your Shares:
File an Online Application:
Submit the Necessary Documents:
Verification by the Company:
Refund Processing:
Note:
See lessIf you are a legal heir, successor, nominee, or administrator, you must submit an affidavit in surety along with your claim.
What are the provisions with respect to signing of financial statements under the Companies Act, 2013?
Under the Companies Act, 2013, the primary responsibility for signing financial statements lies with the Board of Directors. Here’s a comprehensive overview of who is required to sign and the roles of other key officers such as the CFO and Company Secretary: 1. Mandatory Signatures by the Board of DRead more
Under the Companies Act, 2013, the primary responsibility for signing financial statements lies with the Board of Directors. Here’s a comprehensive overview of who is required to sign and the roles of other key officers such as the CFO and Company Secretary:
1. Mandatory Signatures by the Board of Directors
Directors’ Signatures:
Auditor’s Signature:
2. Role of the CFO
3. Role of the Company Secretary (CS)
4. Digital Signatures and Record-Keeping
Key Takeaways
- Directors are Primarily Responsible:
- The financial statements must be signed by the Board of Directors and the independent auditor.
- CFO and CS Roles:
- While the CFO and Company Secretary are critical to the preparation and compliance process, they are not required to sign the financial statements unless they hold a director position or are designated as signatories.
- Digital Compliance:
- The use of digital signatures is acceptable as long as they adhere to the prescribed standards.
See lessWhether an activity which a company is required to do as per its statutory obligations under any law, would be termed as CSR activity?
No, activities that a company is required to perform as per its statutory obligations under any law are not considered CSR (Corporate Social Responsibility) activities. Here's why: Nature of CSR:CSR involves voluntary actions taken by a company to promote social welfare and contribute to sustainableRead more
No, activities that a company is required to perform as per its statutory obligations under any law are not considered CSR (Corporate Social Responsibility) activities. Here’s why:
-
-
-
-
See lessNature of CSR:
CSR involves voluntary actions taken by a company to promote social welfare and contribute to sustainable development, going beyond what is legally required.
Statutory Obligations vs. CSR:
Activities mandated by law (such as environmental compliance, mandatory disclosures, or statutory audits) are compulsory business expenses. These are incurred as part of fulfilling legal requirements and do not fall under CSR, which is aimed at additional social initiatives.
Eligible CSR Activities:
To qualify as CSR, the expenditure must be on activities listed in Schedule VII of the Companies Act, 2013, and should be undertaken voluntarily to benefit society—such as education, health, rural development, and environmental sustainability projects.
Key Takeaway:
Simply put, if an activity is compulsory under any law, it cannot be treated as CSR because it is not a voluntary, extra initiative taken by the company for social good.
There are certain corporate groups who run hospitals and educational institutions, will this be considered as CSR?
When it comes to Corporate Social Responsibility (CSR), it's important to distinguish between core business operations and activities undertaken for social welfare. Here's what you need to know: 1. Core Business vs. CSR Expenditure Core Business Operations:If a corporate group is primarily engaged iRead more
When it comes to Corporate Social Responsibility (CSR), it’s important to distinguish between core business operations and activities undertaken for social welfare. Here’s what you need to know:
1. Core Business vs. CSR Expenditure
Core Business Operations:
If a corporate group is primarily engaged in running hospitals or educational institutions as part of its main business, the related expenditures are treated as regular business expenses.
A company that operates a chain of hospitals for profit cannot count its operating costs as CSR expenditure because these expenses are integral to its business operations.
CSR Activities:
CSR expenditure is meant for activities that are not part of the regular business but are undertaken for the benefit of society.
If a company donates funds to support an independent hospital or educational institution, or if it initiates additional projects in these sectors that go beyond its regular operations, such expenditure can qualify as CSR spending.
2. Alignment with CSR Guidelines
For any expenditure to be considered CSR:
Conclusion
Operating hospitals and educational institutions as part of a company’s primary business does not count as CSR expenditure.
If a company supports or donates to such institutions outside of its core operations—focusing on social welfare—it may be able to claim that expenditure as CSR, provided it meets the guidelines under Schedule VII.
By clearly separating core business activities from purely philanthropic initiatives, companies can ensure they comply with CSR requirements while maximizing their positive impact on society.
See lessWhat are the consequences in case a prescribed company does not spend two percent of its average net profits on CSR activities in pursuance of its CSR Policy?
Under Section 135 of the Companies Act, 2013, prescribed companies must spend at least 2% of their average net profits (calculated over the preceding three years) on CSR activities. If a company fails to meet this CSR spending obligation, the following consequences apply: 1. Transfer to Unspent CSRRead more
Under Section 135 of the Companies Act, 2013, prescribed companies must spend at least 2% of their average net profits (calculated over the preceding three years) on CSR activities. If a company fails to meet this CSR spending obligation, the following consequences apply:
1. Transfer to Unspent CSR Account
The unspent CSR funds must be transferred to a special account called the “Unspent CSR Account” within 30 days from the end of the financial year.
The funds in this account can be carried forward and must be spent on CSR activities in subsequent years. They remain blocked until they are utilized for eligible CSR projects.
2. Disclosure Requirements
Companies are required to disclose details of any unspent CSR funds in their Annual Report and Directors’ Report. This enhances transparency and accountability regarding the CSR activities of the company.
3. Interest on Unspent Funds
If the funds remain unspent for a prolonged period, the company may be required to account for interest on the unspent amount. This serves as a financial deterrent against the continuous accumulation of unutilized CSR funds.
4. Impact on Corporate Governance
Persistent failure to spend the mandated CSR amount may attract regulatory scrutiny and adversely affect the company’s reputation.
Directors are expected to monitor CSR spending closely. Repeated non-compliance can reflect poorly on the Board’s oversight and corporate governance practices.
Key Takeaway
While there is no direct monetary penalty for not spending the required CSR amount, the company is compelled to:
- Transfer the unspent amount to the Unspent CSR Account,
- Carry forward and eventually utilize these funds in future CSR activities, and
- Account for interest if the funds remain unspent over time.
See less