Taking a legal perspective on the issue enumerates different conceptions about the purpose of a corporation. There are at least two legal theories of the firm. On one side is the contracts theory , which views the corporation primarily as a set of property or contractual relations; on the other side, the entity theory recognizes the corporation as a concession from society with its attendant rights but also obligations towards society. Talk to the best corporate lawyers in India to know more.
Under the contracts theory, the corporation is a collection of private contracts between shareholders, managers, and others. In this view, the primacy is the contract with shareholders, which allows and conditions all other contracts. From this, it follows the theory that the corporation should only be governed by the interests of the property owners or the contracting parties. It is up to the bargaining power of each of the parties to the contract to defend their interests; therefore, the corporation should defend the interests of the shareholders. And under the assumption that shareholders, being rational human beings, want more wealth and will never be satiated, the conclusion is reached that the objective of the firm is to maximize shareholder wealth. Top corporate advocates in India can be consulted to know more.
Entity theory postulates that corporations operate within the societal purview, it needs the resources that the planet and society can provide in order to carry out its activities and that it needs society to buy its products and services. The corporation does not operate in isolation . As such, it has responsibilities toward society. It recognises the complexities of the relations between corporations and their surroundings and states that corporation contracts are not explicit and have implications on its surroundings. For eg. The contract formed with the people living nearby a factory that breathe the same air in which the factory releases fumes as a resultant of the production process . Entity theory challenges the fundamental assumptions of the private contract theory by stating that the firm may be private in the sense that it is owned by private individuals, directly or indirectly, it does not necessarily operate exclusively within the realm of those individuals. As it operates in the public space, it does have public responsibilities. You can talk to a good corporate lawyer near you to understand this theory better.
Indian Legal approach towards Corporate Social Responsibility
India stands at the forefront in manifesting the role of law in the context of Corporate Social Responsibility. The corporate social responsibility (CSR) movement began as a response to advocacy for corporations to play a role in ameliorating social problems due to their economic power and overarching presence in daily life. India has gone further than any other country. In 2013, it enacted Section 135 of the Indian Companies Act prescribing a mandatory “CSR spend of 2% of average net profits … during the three immediately preceding financial years” for all companies meeting specified financial thresholds. In other words, companies “having net worth of rupees five billion or more, or turnover of rupees ten billion or more or a net profit of rupees fifty million or more during any financial year” have to ensure that they spend 2% of average net profits made during the three preceding years on CSR activities. The law also requires that firms, above the threshold, establish a CSR Committee of the Board of Directors. This committee is responsible for formulating the firm’s CSR policy, for ensuring that at least 2% of profits are spent on CSR activity, and for explaining why the firm failed to achieve the target. Schedule VII of the 2013 Companies Act provides an illustrative list of activities qualifying for CSR status for purposes of the mandate.
The Birla Example
The Birla Group of organizations is known by all in India. The Birla bunch runs 15 healing facilities in India and 78 schools. They additionally work towards the restoration of the debilitated persons and aided more than 5000 incapacitated individuals. Their restorative projects have helped more than 100,000 patients, which incorporates more than 15, 000 kids, 500 waterfall patients and 2, 000 TB patients. The Birla Group maintain numerous such activities the nation over and has received a few towns and gave help to the villagers.
Corporate Law Grows Closer to Human Rights
Today, the worldwide society calls itself a worldwide town. There is more mindfulness among general society about requesting changes and assistance from corporates.Ensuring human rights are a key a portion of CSR as it touches upon different features of social, financial and natural measurements of corporate action.This might incorporate the privileges of works to get reasonable wages, right to be dealt with similarly and right to wellbeing and security and fundamental offices like safe drinking water. The privileges of customers for protected, dependable and valuable products and administrations, right to get authentic data through promoting or other showcasing exercises.
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