CSR funding for a society

[Nishtha Jain]

If a society is established by a company, along with several other companies, are all companies allowed to fund the society for their CSR activity, while availing exemption from 3 years track record requirement for the society? Can such society accept funding from other entities who are not members and can such entities claim CSR expenditure ?

As per CSR policy rules, it states that a society must be established by the company, either singly or with any other company. And as society needs to have minimum 7 members, so in this case do all 7 members need to be companies or can they be individuals who represents the companies forming such society?

[Sanjeev Agarwal]

Section 135 of the Companies Act, 2013 read with Rule 4 of the Companies (CSR Policy) Rules, 2014 governs this issue.

1. Can all companies establishing a society avail the exemption from the 3-year track record requirement?

Yes. Rule 4 permits CSR activities through a registered society established by the company, either singly or along with any other company. The requirement of a 3-year track record applies only where the implementing agency is not established by the company/companies. Accordingly, where a society is jointly established by multiple companies, all such founding companies may undertake CSR through that society without the 3-year track record requirement, subject to CSR-1 registration and other prescribed conditions.

2. Can the society accept CSR funding from companies that are not founding members?

Yes. Neither Section 135 nor Rule 4 restricts an eligible implementing agency from receiving CSR funds only from its founding companies. Once the society is registered as an eligible implementing agency (CSR-1), it may receive CSR contributions from other companies.

3. Can such non-founder companies claim CSR expenditure?

Yes, generally. A non-founder company may claim CSR expenditure if:

• the society is an eligible implementing agency under Rule 4;
• the activity falls within Schedule VII;
• the expenditure qualifies under Section 135; and
• the company complies with applicable monitoring, reporting and disclosure requirements.

Their eligibility is based on the society being a valid implementing agency and not on the exemption available to founding companies.

4. Must all seven members of the society be companies?

No. Under the Societies Registration Act, 1860 (or the applicable State law), a society requires a minimum of seven subscribers. Since a company is an artificial legal person, it acts through authorised individuals. Therefore, the subscribers/signatories are typically individuals authorised by the founding companies. There is no requirement that all seven members themselves must be companies.

Practical Recommendation: The Memorandum of Association should clearly record that the society is established jointly by the specified companies, each company should authorise its representative through a Board Resolution, and the society should obtain CSR-1 registration before receiving CSR funds.

[Nishtha Jain]

Thank you sir for explaining so well. I still have a query, as per discussion on Issue ID : 121010, so if individuals can only become member in the society as representatives of the company, if we pass backdated BR for the same and authorize existing members of the society as representatives of the company, won't that suffice? Objects of the society does mention CSR purpose, but does not specifically identifies the company. Please give your opinion on this. Will be highly appreciated.

[Nishtha Jain]

Sanjeev Agarwal

AI Summary

CSR implementing agency rules allow a company-established society to receive funding and exempt founding companies from track record requirements.
CSR activities may be carried on through a registered society established by a company, either alone or jointly with other companies, and the three-year track record requirement does not apply where the implementing agency is so established. Once the society is registered as an eligible implementing agency under the CSR framework, it may receive CSR funding from other companies as well, and those contributing companies may generally treat the expenditure as CSR spend if the activity falls within Schedule VII and the remaining statutory and disclosure conditions are met.