Companies Act, 2013--Donating Entire Business Assets

Donating Entire Assets of Business by a Company-Allowability

CA. Jyoti Jain

Giving a gift or grants to charitable organisation supports the charitable purpose. However, transferring of the entire assets of a company as a donation by shareholders formally leads to company being in a position of getting its name struck off from Register of Companies. So, the question here arises is as to whether such action is permissible at all? The learned author discusses this key issue in this article.

1. Prologue

A company is a separate and distinct legal entity from its shareholders, though created and owned by them. Shareholders can, at any point of time, transfer their shares to any other person (except in case of private company) or donate their shares. But, are they empowered to resolve to give all assets and business of company in charity? Conceptually, there is no difference between giving all assets and business for a charitable purpose for which shares were to be donated by the shareholders. But, when the shares are only transferred, the company remains active with the charitable institution or NPO as a shareholder whereas, when the entire assets of the business are donated, it amounts to winding up mode as the business will not be carried out by charitable institution or NPO, etc. In such a scenario, can the company be allowed to empty out itself and donate entire assets which may lead to strike off the name of company from the Register of Companies?