Corporate Social Responsibilities (Companies Act 2013)

The sense of responsibility for a company towards the community and the environment in which it functions comes under the corporate social responsibilities. It usually depends on the company as to how they wish to fulfill these responsibilities.

What is Corporate Social Responsibility?

Corporate Social Responsibility (CSR) is an idea where the company invests in economic or social welfare activities and promotes its commercial interests. According to Section 135 of the Companies Act, 2013, all companies whose -

  • Net worth is Rs. 500 Crore or more.
  • Turnover is Rs. 1000 Crore or more.
  • Net profit of Rs. 5 Crore or more.

or any foreign company who have its branch office or project in India and fulfils the above criteria is also bound to be responsible. In case a company cannot fulfil its responsibilities for 3 consecutive years then, it is not required to do so till the time it is competent enough. 

The CSR Committee (As per Companies Act)

Companies who are eligible for Corporate Social Responsibility needs to constitute a committee containing -

  • 3 or more directors out of which at least 1 should be an independent director. In case, the company does not require appointing an independent director then it shall have 2 or more directors in the committee.      
  • In case of a private company, 2 directors are required if having only two directors on its Board.
  • In case of a foreign company, at least 2 people should be there out of which one shall be a resident of India and another nominated by the foreign country.

What are the Functions of CSR Committee?  

The Corporate Social Responsibility Committee is entitled to perform the following duties –

  • The committee needs to propose a CSR Policy to the Board which focuses on the activities to be undertaken by the Company.
  • Quote an expected expenditure that the company would have to incur.
  • The committee needs to review and make necessary changes to the policy as and when required.
  • Initiate a transparent system for monitoring the implementation of the CSR projects, programs or activities undertaken by the company.

Role of the Board of Directors

The Board of Directors play an important role in the Corporate Social Responsibility Committee since they have to consider the recommendations made by the CSR Committee, approve and disclose the same in the board report.

They need to ensure that all the activities included in the CSR Policy are undertaken by the Company and also disclose the composition of the CSR Committee in the Board Report. At least 2% of the average net profits of the company made during 3 financial years.

Note: The Company should prefer the local area which is assigned to them for the CSR activities. In case, they fail to make use of the area the reason for the same should be specified in the Board Report.

As per the CSR policy,

  • The Company shall include a list of all the CSR projects which it wishes to undertake specifying the way of its execution and implementation.
  • Monitor the progress of these projects or programs.
  • If any excess arises from the CSR projects/programs or activities then it will not form the part of any business profit.

Bonus Points

  • The Balance Sheet of a foreign company  upon filing shall include an Annexure of the CSR report
  • The Board of Directors must make sure that the activities under the CSR policy are related to the areas/subjects mentioned in the Act.

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