Corporate Social Responsibility
and
One Person Company
BARODA CPE STUDY CIRCLE
CA (Dr.) ALOK SHAH
Partner
Contractor, Nayak & Kishnadwala
Your Company Can do “Good”
and still can do “Well”.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
1.
INTRODUCTION
2.
BACKGROUND
3.
QUALIFYING COMPANIES
4.
CSR COMMITTEE
5.
CSR ACTIVITIES UNDER SCHEDULE VII
6.
CSR EXPENDITURE
7.
CSR REPORTING
8.
RULES AND CSR POLICY
CORPORATE SOCIAL RESPONSIBILITY
 CSR is a management concept whereby companies
integrate social and environmental concerns in their
business operations and interactions with their
stakeholders.
 CSR is understood as being the way through which a
company achieves a balance of economic,
environmental and social imperatives (“TripleBottom-Line- Approach”), while at the same time
addressing the expectations of shareholders and
stakeholders.
• CSR is a process with the aim• To embrace responsibility for the
company's actions and
• Encourage a positive impact
through its activities on the
environment,
consumers,
employees,
communities,
shareholders and all other
members of the public sphere
who may also be considered as
stakeholders.
• The
term
“Corporate
Social
Responsibility" became popular in
the 1960s.
SECTION 135
Effective Date
• 1st April 2014
Constitution Of CSR
Committee
• In the 1st Board Meeting of FY i.e.
in April/May
1st Meeting of CSR
Committee
• Before the 2nd Board Meeting of FY
i.e. in July/Aug
Approval of
CSR Policy
• On the 2nd Board Meeting of FY
i.e. in July/Aug
Section – 135 Of The Companies Act, 2013
QUALIFYING COMPANIES
 The CSR Clause of the Companies Act, 2014 is applicable to
any company with:
• A Net Worth of Rs. 500 crores or more, or
• A Turnover of Rs. 1000 crores or more, or
• A Net Profit of Rs. 5 crores or more during any financial year.
 CSR Rules 3 (2)
A Company which ceases to be covered under above criteria
for 3 consecutive Financial years are not required to comply
with, till such time it meets with the criteria again.
CSR Committee
“CSR Committee” means the Corporate Social Responsibility Of
the Board referred to in section 135 of the Companies Act 2013.
Categories of
Company
Listed Company
CSR Committee consists of
3 or more Directors (atleast 1 should be
independent)
Unlisted
Public 3 or more Directors (may not have
Company
independent Director)
Private Company
3 or more Directors (If 2 Directors on Board
with 2 Directors)
Foreign Company
2 or more persons (one nominated by foreign
co. and 1 Director resident in mentioned to
receive notice on behalf of co.)
COMPLIANCES FOR QUALIFYING COMPANIES
 The Corporate Social Responsibility Committee shall,
• Formulate and recommend to the Board, a Corporate
Social Responsibility Policy which shall indicate the
activities to be undertaken by the company as
specified in Schedule VII;
• Recommend the amount of expenditure to be
incurred on the activities referred to in clause (a); and
• Monitor the Corporate Social Responsibility Policy of
the company from time to time.
 The Board of every company,
• After taking into account the recommendations made by
the Corporate Social Responsibility Committee, approve
and disclose contents of Corporate Social Responsibility
Policy in its report and also place it on the company's
website, if any, in such manner as may be prescribed; and
• Ensure that the activities as are included in Corporate
Social Responsibility Policy of the company are
undertaken by the company.
CSR Activities Under Schedule-VII
1. Eradicating extreme hunger and poverty.
2. Promoting education including social education and
employment enhancing vocational skills.
3. Promoting gender equality, empowering women, setting
up homes and hostels for women and orphans; setting up
old age homes, day care centers and such other facilities
for senior citizens and measures for reducing inequalities
faced by socially and economically backward groups.
4. Ensuring environmental sustainability, ecological balance.
5. Protection of national heritage, art and culture.
6. Measures for the benefit of armed forces veterans, war
widows and their dependents.
7.
Training to promote rural sports, nationally recognized
sports, paralympic sports and Olympic sports.
8. Contribution to the Prime Ministers National Relief Fund
or any other fund set up by the Central Government for
socio-economic development and relief and welfare of
the scheduled castes, Scheduled tribes, other backward
classes, minorities and women.
9. Contributions or fund provided to technology incubators.
10. Rural development projects.
CSR Activities through different Entities
 A Company can carry out CSR activities through following
entities:
• Registered trust or
• Registered Society or
• Section 8 Company (Section 25 as per 1956 Act)
If above entity is not established by company or holding
company or subsidiary company or associate company then it
should have established track record of 3 years to undertake
similar projects/ programs.
CSR Expenditure
• The Board of every company shall ensure that the company
spends, in every financial year, at least 2% of the average net
profits of the company made during the 3 immediately
preceding financial years, in pursuance of its Corporate Social
Responsibility Policy.
• Provided that the company shall give preference to the local
area and areas around it where it operates, for spending the
amount earmarked for Corporate Social Responsibility
activities.
• Provided further that if the company fails to spend such
amount, the Board shall, in its report made specify the reasons
for not spending the amount.
Format For Details Of Amount Spent on CSR
1.
2.
Sr. CSR
No project/
activity
identifi
ed
1.
2.
Total
3.
Sector
in
which
the
Project
is
covered
4.
Projects/
Programmes
1. Local area/
others2. Specify the
state /district
(Name of the
District/s,
State/s
where
project/ Prog.
was
undertaken
5.
Amount
outlay
(budget)
project/
program
me wise
6.
Amount
spent
on
the project/
programme
Subheads:
1.Direct
expenditure
on project,
2.Overhead
7.
Cumulati
ve spend
up to the
Reporting
period.
8.
Amount
spent:
Direct/
through
implementi
ng agency*
CSR Expenditure
• If the Company fails to spend 2% or any part thereof - provide
reasons for not spending the amount.
• A statement of CSR committee that the implementation and
monitoring of CSR policy is as per CSR objectives and Policy of
the Company.
• Above reporting to be signed by CEO/MD/Director and
Chairman of CSR Committee.
As per CSR Rules Net profit shall not include following:
• Any profits arising from any overseas branch(es) of the
Company whether operated as separate company or other
form.
• Any dividend received from other companies in India which
comply with CSR requirements.
CSR Reporting
 Reporting will be done on an annual basis commencing from
FY 2014-15.
 Board of Directors considering recommendations of CSR
committee approve CSR policy and disclose its content in
Board Report and on its website.
 The Board Report (Directors Report) shall disclose the
following;
• CSR Policy and brief of proposed projects/ programs,
• Composition of CSR Committee,
• Average Net profit of last 3 years and required (2%) CSR
expenditure.
The CSR Committee shall provide for the
CSR Policy which shall include the
following:
• Specify the projects and programmes to
CSR
Policy
be undertaken.
• Prepare
a
list
of
CSR
projects/programmes which a company
plans to undertake during the
implementation year, specifying
modalities of execution in the
areas/sectors chosen.
• Surplus arising out of the CSR
activity will not be part of business
profits of a company.
• Would specify that the corpus
would include 2 percent of the
average net profits.
• Companies may collaborate or
pool resources with other
companies to undertake CSR
activities.
• Only such CSR activities will be
taken into consideration as are
undertaken within India.
Other
CSR
Rules
• Only activities which are not exclusively
for the benefit of employees of the
company or their family members shall
be considered as CSR activity.
• Companies shall report, in the prescribed
format, the details of their CSR initiatives
in the Directors’ Report and in the
company’s website.
• Tax treatment of CSR spend will be in
accordance with the IT Act as may be
notified by the Central Board of Direct
Taxes (CBDT).
India’s top companies are ranked 1-10 based on Net Sales for the
Financial Year 2012 and their spending on CSR
Sr COMPANY
No.
REVENUE AVG PAT ACTUAL 2% OF
SPENT
PAT
1
INDIAN OIL CORP.
442,459
7,783
83
156
2
RELIANCE INDUSTRIES
368,571
21,138
288
423
3
BPCL
223,315
1,438
8
29
4
HPCL
195,891
1,118
27
22
5
TATA MOTORS
170,678
8,437
15
169
6
ONGC
151,121
23,660
121
473
7
STATE BANK OF INDIA
147,197
13,056
71
261
8
TATA STEEL
135,976
3,895
146
78
9
PNB GILTS
104,628
29
NA
1
10
HINDALCO INDUSTRIES
82,549
3,597
28
72
NOTABLE WORK BY COMPANIES
Bharat Petroleum Corporation
Its rain water harvesting project “Boond”, in association with the Oil
Industries Development Board, selects draught-stricken villages to
turn them from “water-scarce to water-positive”. Some of BPCL‟s other
social programmes include adoption of villages, prevention and care
for HIV/AIDS and rural health care.
Hindalco Industries
Its CSR activities are concentrated in 692 villages and 12 urban slums,
where it reaches out to about 26 lakh people. It has constructed check
dams, ponds and bore wells to provide safe drinking water. In
education, it awards scholarships to students from the rural schools it
support. Its other interests include women's empowerment and health
care, in which it treats patients in hospitals, runs medical camps and
operates rural mobile medical van services.
Indian Oil Corporation
It runs the Indian Oil Foundation (IOF), a non-profit trust, which
works for the preservation and promotion of the country's heritage.
IOCL also offers 150 sports scholarships every year to promising
youngsters. Some of its other initiatives lie in the domains of clean
drinking water, education, hospitals and health care.
Tata Steel
It comes out with the Human Development Index (HDI), a composite
index of health, education and income levels, to assess the impact of
its work in rural areas. Health care is one of its main concerns. The
Tata Steel Rural Development Society aims to improve agricultural
productivity and raise farmers‟ standard of living.
1. CSR which has largely been a voluntary
Analysis And
Areas
Requiring
Clarifications
2.
3.
4.
5.
contribution by corporates has now been
included in law.
It is not clear what all constitutes CSR activities
as the list specified under Schedule VII of the
Act seems like an inclusive list and not
exhaustive.
There is a debate as to whether any penal
consequences will emanate on failure to spend,
or an explanation in the directors’ report on the
reasons therefore are only warranted.
Applicability of Sec. 135, if the company does
not meet the criteria in any one of the three
consecutive years.
Calculation of Net Profits for applicability of
Sec. 135 and Calculation for the purpose of
Contribution and Spending.
One Person Company (OPC)
OPC
1.
NEED FOR FORMATION OF OPC
2.
DEFINITION
3.
CHARACTERISTICS OF OPC
4.
INCORPORATION – SECTION 3(2)(C)
5.
NOMINATION
6.
OPC- COMPLIANCE
7.
EXEMPTION TO OPC
8.
CONVERSION OF OPC INTO PRIVATE OR PUBLIC
COMPANY
9.
BENEFITS TO OPC
10.
ANALYSIS AND AREAS REQUIRING CLARIFICATION
NEED
 With increasing use of information technology and computers,
emergence of the service sector, it is time that the entrepreneurial
capabilities of the people are given an outlet for participation in
economic activity. Such economic activity may take place through
the creation of an economic person in the form of a company.
 To facilitate this the law should recognize the formation of a
single person economic entity in the form of ‘One Person
Company’.
 Such an entity may be provided with a simpler regime through
exemptions so that the single entrepreneur is not compelled to
fritter away his time, energy and resources on procedural matters.
Definition of OPC
One Person Company (OPC) Means
“a company which has only ONE
person as a member”
Characteristics of OPC
(i) Person incorporating a One Person Company should be a natural
person, Indian citizen and resident in India
(ii) OPC may be registered as a private company with one member
and at least one director;
(iii) Letters ‘OPC’ to be suffixed with the name of OPCs to
distinguish it from other companies.
(iv) No person shall be eligible to incorporate more than five One
Person Companies (OPC)- [Rule 2.1(2)]
(v) Adequate safeguards in case of death/disability of the sole person
should be provided through appointment of another individual
as nominee director.
(vi) Member in One Person Company becomes a member in another
One Person Company by virtue of his being a nominee in that
One Person Company, he/she shall meet the eligibility criteria of
not more than five OPC.
Incorporation – Section 3(1)(c)
An OPC may be formed for any lawful purpose by one person. Salient
features in relation to incorporation include:
(i) The memorandum of an OPC shall indicate the name of another
person, with his prior written consent, who shall, in the event of the
subscriber’s death or his incapacity to contract become the member
of the company.
(ii) The written consent of such person shall also be filed with the
registrar of companies at the time of incorporation of the OPC
along with its memorandum and articles.
(iii) The person incorporating an OPC must be an Indian citizen who
has stayed in India for at least 182 days during the immediately
preceding one financial year. [Rule 2.1(1)]
Nomination by the subscriber or member of OPC
1. The subscriber to the memorandum of an OPC shall nominate a
person, after obtaining his/her prior written consent, who shall,
in the event of the subscriber’s death or his incapacity to contract,
become the member of that OPC. [Rule 2.2(1)]
2. The member of OPC may at any time change the name of such
nominee by giving notice as prescribed. [Section 3(1)]
3. Any change in the name of nominee shall not be deemed to be
an alteration of the memorandum. [Section 3(1)]
4. Only a natural person who has stayed in India for a period of not
less than 182 days during the immediately preceding one financial
year is entitled to be a nominee for the sole member of an OPC.
[Rule 2.1(1)]
OPC- Compliance
OPC has to comply with provisions
applicable to Private Limited company as
The definition of “private company” under
section 2(68) of the 2013 Act includes OPC.
Exemption to OPC
(i) OPC is not required to prepare cash flow statement as a
part of financial statement. [Section 2(40)]
(ii) An OPC is not required to hold an annual general meeting.
[Section 96(1)]
(iii) The minimum number of directors in the case of an OPC
has been limited to one. [Section 149(1)(a)]
(iv) In case an OPC does not have a company secretary, the
annual return can be signed by the director of the company.
[Proviso to section 92(1)]
(v) An OPC must conduct at least one meeting of the board
of directors in each half of a calendar year with a gap of at
least 90 days between two meetings. [Section 173(5)]
OPC not required to follow
Following Sections not apply to OPC
- Section 98: Power of Tribunal to call meetings of members, etc.
- Section 100: Calling of extraordinary general meeting
- Section 101: Notice of meeting
- Section 102: Statement to be annexed to notice
- Section 103: Quorum for meetings
- Section 104: Chairman of meetings
- Section 105: Proxies
- Section 106: Restriction on voting rights
- Section 107: Voting by show of hands
- Section 108: Voting through electronic means
- Section 109: Demand for poll
- Section 110: Postal ballot
- Section 111: Circulation of members’ resolution
- Section 173: Meeting of Board (in case where OPC has only one director)
- Section 174: Quorum for meetings of board (in case where OPC has only
one director)
Conversion of OPC into private or public company
 OPC can get itself converted into a private or public company
1. After increasing the minimum number of members and directors
to 2 or minimum of 7 members and 3 directors as the case may be
2. By maintaining the minimum paid-up capital as per requirements
of the 2013 Act for such class of company and by making due
compliance of section 18 of the 2013 Act for conversion. [Rule 6]
(1) Where the paid up share capital of an OPC exceeds 50 lakh rupees or
(2) Its average annual turnover during the period of immediately preceding 3
consecutive financial years exceeds 2 crore rupees,
Such OPC shall be required to convert itself into either a private company or
a public company in accordance with the provisions of section 18 of the 2013
Act:
(i)
Within 6 months of the date on which its paid up share capital is
increased beyond 50 lakh rupees; or
(ii) The last day of the period immediately preceding three consecutive
financial years during which its average annual turnover exceeded 2
crore rupees; or
(iii) The close of the financial year during which its balance sheet total
exceeded 1 crore rupees, as the case may be.
Benefits to OPC
 An OPC gives the advantage of limited liability, the liability of
the member will be limited to the unpaid subscription money.
 An OPC being an incorporated entity will also have the
feature of perpetual succession.
 It will make easier for entrepreneurs to raise capital for
business.
 It will have lesser compliance burden compared to private
companies.
Analysis and Areas Requiring Clarification
 While the idea of an OPC looks promising, doing business in
OPC structure may effectively result in higher tax implications
on the businesses as the rate of taxation on companies is higher.
 Also, since a company is a separate legal entity, the distribution
of dividend by an OPC may attract dividend distribution tax.
 Sole proprietors, on the other hand are taxed at the rates
applicable to individuals, i.e., differential rates for different slabs
of income.
 OPC has an edge over sole proprietorship as it helps to de-risk.
 Contract with the member by OPC.
Any Questions?