Sponsoring directors son higher education
This query is : Resolved
24 March 2014
The son of the director of the company is rendering professional services to the company. He is going abroad for higher education(MBA). Can the company sponsor his education? If yes, what are the legal formalities and implications. Please answer as soon as possible.
24 March 2014
formal resolution is required in this case.
Message likes :
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25 March 2014
Thank You for your reply.
Please clarify what type of formal resolution? And Is CLB to be informed for this transaction? Is there any limit to this expense?
Please clarify what type of formal resolution? And Is CLB to be informed for this transaction? Is there any limit to this expense?
25 July 2025
Great question! Here’s a detailed breakdown on sponsoring the director’s son for higher education by the company:
---
### 1. **Can the company sponsor the director’s son’s education?**
* Yes, the company can sponsor the education expenses if the son is rendering professional services to the company (i.e., is an employee or consultant).
* However, this must be done transparently and with proper corporate approvals to avoid any issues under the Companies Act or tax laws.
---
### 2. **Type of Formal Resolution Required**
* The **Board of Directors** must pass a **board resolution** approving the sponsorship/financial assistance for higher education.
* This resolution should clearly state:
* The purpose of the sponsorship.
* The relationship of the beneficiary to the director.
* The amount or the nature of expenses to be borne by the company.
* That this sponsorship is in the company’s interest or part of employee welfare/professional development (if applicable).
---
### 3. **Is approval from the Company Law Board (CLB) or Registrar of Companies (ROC) required?**
* **No specific requirement** to inform the CLB or ROC for such a transaction unless:
* The amount is substantial and treated as a related party transaction under Section 188 of the Companies Act, 2013.
* The company is a listed company or falls under rules requiring shareholders’ approval for related party transactions.
* For private companies, board approval is generally sufficient.
---
### 4. **Limits and Legal Implications**
* The company should ensure the expense is **reasonable** and **justifiable** as a business expense or employee welfare expense.
* If the amount is large or non-justifiable, it may be considered a **perquisite** or **benefit in kind**, and tax implications could arise for the beneficiary.
* The expense should be disclosed properly in the company’s books and financial statements.
* Tax-wise, if the son is an employee, this could be treated as a taxable perquisite. If he is not an employee, it may not be deductible as a business expense.
---
### 5. **Summary**
| Aspect | Action/Requirement |
| ---------------- | ---------------------------------------------- |
| Approval | Board Resolution approving sponsorship |
| CLB/ROC Approval | Not required generally |
| Disclosure | Proper accounting and related party disclosure |
| Tax Implication | Could be taxable perquisite if son is employee |
| Reasonableness | Expense should be reasonable & justifiable |
---
If you want, I can help draft a sample board resolution for this purpose. Would you like that?
---
### 1. **Can the company sponsor the director’s son’s education?**
* Yes, the company can sponsor the education expenses if the son is rendering professional services to the company (i.e., is an employee or consultant).
* However, this must be done transparently and with proper corporate approvals to avoid any issues under the Companies Act or tax laws.
---
### 2. **Type of Formal Resolution Required**
* The **Board of Directors** must pass a **board resolution** approving the sponsorship/financial assistance for higher education.
* This resolution should clearly state:
* The purpose of the sponsorship.
* The relationship of the beneficiary to the director.
* The amount or the nature of expenses to be borne by the company.
* That this sponsorship is in the company’s interest or part of employee welfare/professional development (if applicable).
---
### 3. **Is approval from the Company Law Board (CLB) or Registrar of Companies (ROC) required?**
* **No specific requirement** to inform the CLB or ROC for such a transaction unless:
* The amount is substantial and treated as a related party transaction under Section 188 of the Companies Act, 2013.
* The company is a listed company or falls under rules requiring shareholders’ approval for related party transactions.
* For private companies, board approval is generally sufficient.
---
### 4. **Limits and Legal Implications**
* The company should ensure the expense is **reasonable** and **justifiable** as a business expense or employee welfare expense.
* If the amount is large or non-justifiable, it may be considered a **perquisite** or **benefit in kind**, and tax implications could arise for the beneficiary.
* The expense should be disclosed properly in the company’s books and financial statements.
* Tax-wise, if the son is an employee, this could be treated as a taxable perquisite. If he is not an employee, it may not be deductible as a business expense.
---
### 5. **Summary**
| Aspect | Action/Requirement |
| ---------------- | ---------------------------------------------- |
| Approval | Board Resolution approving sponsorship |
| CLB/ROC Approval | Not required generally |
| Disclosure | Proper accounting and related party disclosure |
| Tax Implication | Could be taxable perquisite if son is employee |
| Reasonableness | Expense should be reasonable & justifiable |
---
If you want, I can help draft a sample board resolution for this purpose. Would you like that?
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