Can companies donate out all their assets?

[2022] 134 taxmann.com 155 (Article)

Companies are creatures of their shareholders. If the company is a private company, the business and wealth of the company is the property of its shareholders. Technically, shareholders own the shares of the company, and certainly, a shareholder may donate his shares out. There are several iconic examples of such demonstrations of charitable intent, such as Mark Zuckerberg giving away 99% of his holdings in Facebook and Bill Gates donating 95% of his wealth to their charitable foundation and ultimately utilizing the same for charitable purposes.

However, can the shareholders resolve that the business and assets of the company that they own be donated out? Conceptually, there should be no difference between emptying out the assets of the company to the same charitable cause to which shareholders would have considered donating the shares. There are various judicial precedents1 to refer to when it comes to checking the admissibility of a shareholder to transfer his shares by way of gift. However, in case of donation of shares, the company would remain up and running, and the charity will become simply the owner of the shares. However, if the business or assets of the company are donated out, that amounts to a mode of winding up, because the charity will not obviously run the business. So, can such donation be used as a mode of emptying the company out, so as to spend all its substratum, and once the company that empties out itself, it may just become a dud company, good for a strike off action u/s 248 (2) of the Companies Act, 2013 (‘Act’).

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