Determinative Road map for Provisioning of Funds for Employee Welfare Trusts Under the Companies Act, 2013

Employee Welfare Trust has emerged as an important nexus for rewarding the most valuable asset of the Organisation i.e. Employees for their association and performance.
With the promulgation of the New Companies Act, the framework involving designing and functioning of Employee Welfare Trusts will undergo various modalties as Rule 16 of the Companies Act, 2013 casts certain stipulations for provisioning of money by the Company for purchase of its own shares for the benefits of the Employees.

Ms. Mohini Varshney
Assistant Vice President
+919971673332
mohini@indiacp.com

The gist of the stipulations imposed by the Companies Act, 2013 for provisioning of money for purchase/subscription of the shares via Trust Route are outlined as follows:

1. The Scheme involving provisioning of money either for purchase or subscription of shares is required to be approved by the shareholders via Special Resolution;
2. In respect of listed entities, shares can be purchased by the Trust only via Stock Exchanges and not by way of private offers or arrangements;
3. In case of unlisted entities, shares can be purchased by the Trust on the basis of value computed by the registered valuer;
4. At any point of time, the provisioning by the Company cannot exceed beyond 5% of the paid-up value and free reserves of the Company.

With the above backdrop, it can be inferred that the lawmakers have intended to streamline the provisions governing funding by the Companies for purchase of its own shares with the sole objective of gratifying employees.