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Section 181 of the Companies Act 2013

Sarathykannan D (Articles clerk) (58 Points)

28 November 2018

If there is a loss in one of the Three preceeding previous years,Whether Loss Making year is to be Considered or not? If Not then How it is to be Calculated.Please Reply With an Example for Better Clarification.Tq in Advance Sir/Madam.Waiting for the Reply Asap.....

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kapil gupta (217 Points)
Replied 28 November 2018

Section-181 power of company to make charitable and bonafide contribution allow co. to make contributions upto 5% of average net profit of 3 preeceding financial years.And making contri beyond 5% shall recquire approval shareholders in meeting.
Answering to your question which ask for cos which have suffered losses in any one financial year is also allowed to make contributions
section 181 considers net profits of last 3 Financial year even if co. have made 0 profit in any one years or years still it is allowed to make contri.
eg-AbC Ltd.have made net profit of 5cr and 6 vr in financial year 2009 and 2010 respectively & made a loss of 2 cr in 2011.Now lets assume in current financial year 2012
it is allowed to make contri of 5+6+(2)/3 which is 3cr. without taking shareholders approvals and beyond that it need shareholders approval.
lets make some changes to aforesaid questions if Abc ltd has made 0 profit in 2009 and 2011 then it is allowed to make contri 0+6+0/3 which is 2cr without taking shareholders approval and beyond that approval shall be recq.

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Sarathykannan D (Articles clerk) (58 Points)
Replied 28 November 2018

what if All the Three Preceeding previous years Loss.Still Made Contributions,What is the Impact,Please Explain with some Example sir

kapil gupta (217 Points)
Replied 28 November 2018

no in that case you cant make contribution as sec 181 empowers co.to make contribution out of Net profits only and no other source is allowed to be utilised(eg- Free reserves etc)

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