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Monday 6 July 2015

CL: Section 180 to section 183 in very easy language



Section 180: Restriction on Power of Board
·           * According to section 180(1), Board need the prior approval of shareholders by passing the SR at GM for exercising the following powers:
a.       Sell, lease or otherwise dispose of the whole, or substantially the whole of undertakings of the company.
b.      Invest, otherwise than in trust securities, the compensation received in respect of the compulsory acquisition of any undertaking of the company as a result of merger or amalgamation.
c.       Borrow moneys, if money already borrowed, together with moneys to be borrowed will exceed the aggregate of paid up capital and free reserves of the company.
d.      Remit, or give time for the repayment of any debt due by a director. However, advance given in the ordinary course of business to a director may be renewed by a banking company without the approval of the GM.
·           *   Section 180 applies to all companies.

Undertaking
It means undertaking in which company has made investment more than 20% of its net worth or undertaking which generates 20% of the total income as per the last audited balance sheet.

Net worth
Aggregate value of paid up capital (+) all reserves created out of profits and securities premium amount (-) accumulated losses, deferred expenditure and miscellaneous expenditure not written off as per last audited balance sheet.

Substantially the whole of undertaking
It means in any financial year, 20% or more value of undertaking as per last audited balance sheet.

Section 181: Donation to charitable funds
·            * BOD of company may contribute or donate to bona fide charitable and other funds with prior approval of GM when such aggregate amount of contribution in any financial year, exceeds 5% of its average net profit for 3 immediately preceding financial year.
·            * Any amount spent for welfare of employees is within the scope of charitable contribution.
·            * The resolution passed by the shareholders in GM must specify the total amount upto which moneys may be contributed by Board.
·            * Section 181 is applicable to all companies.

Section 182: Political Contributions



·           * Contribution means any payment made without consideration. It includes donation, subscription or any other payment. It includes contribution made to:
-> Political party
-> Person for political purpose.
·            * Section 182 covers political contribution made whether directly or indirectly. Directly means company has contributed towards any expenses for political party or donation made to political party. Indirect contribution means payment made to any person for benefit which political party has obtained from that person.
Example: Expenditure incurred by company on printing and distribution of posters and leaflets for political party.
·           * It also includes any expenditure incurred by a company on advertisement in any publication by or on behalf of a political party or for its advantage.
Point to be noted
Any assistance, donation and contribution to a political party or for political purpose, made through means other than money, but which is quantifiable and capable of being expressed in monetary terms is also covered under section 182.
·            * Government companies and companies which have been in existence for less than 3 financial years are not allowed to make political contributions. Political contribution may be made by any other company subject to the following conditions:
-> The aggregate amounts contributed and proposed to be contributed by a company in any financial year shall not exceed 7.5% of its average net profits of preceding last 3 financial years.
-> Board resolution should be passed.
·            * Disclosure in P & L A/C
-> The amount of contributions during the financial year.
-> The name of the party or person to which amount has been contributed.

Penalty for contravening the provisions of section 182
-> Company – Maximum fine: 5 times the amount so contributed
->Officer in default – Maximum imprisonment: 6 months,  Maximum fine: 5 times the amount so contributed.

Section 183: Contribution to National Defence Fund
·           * Company can contribute any amount to national defence fund or any other fund approved by CG for the purpose of defence fund.
·            * Amount can be contributed to national defence fund by board of directors or any person or authority exercising powers of board or of the company in general meeting.
·            * Section 183 overrides section 180, 181, 182 and anything contained in MOA or AOA of company.
·           * Company should disclose the total amount contributed to national defence fund in its P & L A/C during the financial year.

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