Chapter XII - Meetings of Board and Its Powers
Section 181
Section 181: company to contribute to bona fide and charitable funds
Section 181 empowers the Board of Directors to contribute to bona fide charitable and other funds. Prior permission of the company in general meeting is needed where the aggregate contributions in a financial year exceed five per cent. of the company’s average net profits for the three immediately preceding financial years.
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Need advice on Section 181?
This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
The Board of Directors of a company may contribute to bona fide charitable and other funds: Provided that prior permission of the company in general meeting shall be required for such contribution in case any amount the aggregate of which, in any financial year, exceed five per cent. of its average net profits for the three immediately preceding financial years.
Introduction
Section 181 is separate from the corporate social responsibility obligation in section 135 and from political contributions under section 182. It sets a governance threshold on charitable giving rather than requiring any giving.
Section 181 commenced on 12 September 2013 under S.O. 2754(E). The India Code consolidated text shows no amendment, and its text matches the 2013 Gazette.
Key takeaways
Board power
The Board may contribute to bona fide charitable and other funds.
Five per cent. threshold
Members’ prior permission is needed if aggregate contributions in a financial year exceed five per cent. of average net profits.
Three-year average
The average is taken over the three immediately preceding financial years.
Distinct from CSR
Section 135 CSR spending and section 182 political contributions are governed separately.
The Board’s power
The Board of Directors of a company may contribute to bona fide charitable and other funds. The word "bona fide" signals that the fund must be genuine; contributions are a use of company money and remain subject to directors’ duties under section 166.
When members must approve
Under the proviso, prior permission of the company in general meeting is required where the aggregate amount of contributions in any financial year exceeds five per cent. of the company’s average net profits for the three immediately preceding financial years. The permission must be obtained before the contribution that crosses the threshold.
Relationship with CSR and political contributions
Section 181 does not itself create a spending obligation. CSR spending by qualifying companies is governed by section 135 and Schedule VII, and contributions to political parties by section 182; section 183 separately covers contributions to the National Defence Fund. Whether a particular payment also counts towards CSR depends on section 135 and its rules, not on section 181.
Practical preparation
Compute average net profits for the three immediately preceding financial years; track cumulative charitable contributions during the year; seek members’ approval in advance if a contribution would take the yearly total above five per cent.; record the Board decision and the fund’s bona fides.
Exemption notifications issued under section 462 can modify how some provisions apply to particular classes of companies (for example private, Government, Section 8 or Nidhi companies); check whether any applies to your company before relying on this guide.
Practical checklist
Do
- Keep a running total of contributions in the financial year.
- Obtain general meeting approval before crossing the five per cent. threshold.
Avoid
- Do not treat a section 181 contribution as automatically counting towards CSR under section 135.
Illustrative example
Hypothetical: large donation to a disaster-relief trust
A company’s Board wants to donate to a registered relief trust, and the donation would take the year’s total above five per cent. of average net profits.
Compute
The finance team computes average net profits for the three immediately preceding financial years.
Approval
Because the threshold would be crossed, the Board seeks prior permission of the members in general meeting.
Contribute
After approval, the donation is made and recorded.
Outcome
- Seeking approval before payment keeps the contribution within section 181.
Glossary
- Average net profits
- The average of the company’s net profits for the three immediately preceding financial years.
- Bona fide fund
- A genuine charitable or other fund, not a device to divert company money.
Frequently asked questions
Can the Board make charitable donations without shareholders?
Yes, so long as the aggregate contributions in the financial year do not exceed five per cent. of average net profits for the three immediately preceding financial years.
Is section 181 the same as CSR?
No. Section 181 is a power with a member-approval threshold. CSR is a separate obligation under section 135 for qualifying companies.
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026