Producer Companies: Navigating the Structure and Functions

Economy of India is agricultural centric economy. Somewhere around 60% of population depends on the agricultural activities for their livelihood. As, these primary producers and farmers had a long struggle in our country. For addressing these problems, the government of India formed an expert committee. In year 2002, producer company were introduced in the Indian Economy. From then, it has helped primary producers which gains access to input, credit, production technology, market, etc.

What are Producer Company?

Producer company can be defined as legally recognised organisations of farmers/agriculturists with an aim for improving standard of living and ensuring a better status if the available support, income and profit. Section 465(1) of Companies Act,2013 states that provisions which relate to a Producer Company under part IXA of Companies act,2013 should continue to apply. So, under this the producer company could be formed 10 individuals or 2 institutions or with a combine of them having their business as specified under this.

A farmer Producer Company is a combination or hybrid of a private limited companies and cooperative society, which is register under this act. It has a democratic governance and all member have equal voting rights regardless of the number of shares.

Objectives of the Farmer Producer Company

The main objective of farmer producer company is facilitating formation of co-operative business. According to the act, the objective of producer company shall be related to these matters:-

1. Production, harvesting, procurement, grading, pooling, handling, marketing, selling, exporting primary production of members or import of goods and services for the benefit, given that the producer company can carry on any activity specified in clause either by itself or by an institution.
2. Processing which includes preserving, drying, distilling, brewing, vinting, canning and packaging of the produce.
3. Manufacturing, sale or supply of the machinery, equipment’s or consumables mainly to the members.
4. Providing education on mutual assistance principles to the members and others.
5. Giving technical services, consultancy service, training, research and developing other activities for the promotion of interests of members.
6. Generating, transmitting and distributing power, revitalizing land and water resources its uses, conservation and communication related to the primary produce.
7. Insurance of the producers or the primary produce.
8. Promoting the techniques of mutuality and mutual assistance.
9. Providing Welfare measures or facilities for benefit of members as decided by the board.
10. Financing of the procurement, processing, marketing or any other activity specified in clause (a) to (j) which includes extending the credit facility or any other financial service to the members.

Authorized Activities of Producer Companies

Producer company are required to deal with the produce of the members authorizing it to carry on any of the following activities:-

• Processing includes preserving, brewing, vinting, drying, distilling, canning and packaging of produce of the members.
• Manufacturing, selling or supplying the equipment, machinery or consumables to the producer company members.
• Providing education on mutual assistance principle to the producer members of the company and others.
• Providing consulting services, technical service, training, R&D to all the other required activities for promoting the interest of producer members.
• Generation, Transmission and distribution of power, conservation and communication which is relatable to the primary produce, revitalizing the land and water resources.
• Insurance of Primary produce and its producer.
• Promoting the technique of mutuality and assistance.
• Welfare of the members as decided by the board.
• Financing of procurement, marketing, processing or other activities such as extending of credit facilities or any other financial assistance to its producer members.
• Any other activity in order to promote mutual assistance amongst the producer members and the lines of principles of mutuality.

Pre-Incorporation Checklist

• 10 or more producers could join together for forming a producer company but there is no upper limit in the number of members.
• Any 2 or more producer institutions can form a producer company.
• Minimum Paid up Capital is required for incorporating a producer company.
• Minimum of 5 directors in a producer company
• It can not be converted in a public company although it could be converted in a multi state cooperative society

Registration Procedure

The process for registering a producer company is similar with that of a Private Limited Company. Digital Signature Certificate (DSC) and Director Identification Number (DIN) shall be obtained first for the Proposed First directors of the company. Once, DSC and DIN are acquired an application for the name reservation is filed with the relevant Registrar of Companies(ROC).

The Act requires that the name of Producer Company should end with ‘Producer Limited Company’. As, the suggested name is approved by Registrar of Companies (ROC) an application for incorporation is to be filed in the provided format for incorporating the producer company. One the registrar is satisfied by the application and the required documents are filed for incorporating the producer company, they will approve the same and issue Certificate for incorporation.

Procedure and Documentation Required to Incorporate a Producer Company

• The first step is obtaining a Digital Signature Certificate (DSC) from all the directors. Documents which are required for obtaining a DSC are:-
  • PAN Card of the Director
  • Aadhaar Card of the Director
  • Photo
  • Email Id
  • Contact Number
• After obtaining a DSC, the next step is obtaining a Director identification Number by filing form DIR-3 or SPICe+ form along with a self attested identity proof, address proof and photo.
• After which the name of the production company should be finalised. For that SPICe+ to Registrar of Companies (ROC) is to be filed by giving 2 names in order of preference along with the significance of names. This name shall have the word Producer Company at its end.
• Once this name is approved by ROC the following documents should be prepared:-
  • Memorandum of Association should be drafted by incorporating all the object that the company needs to follow.
  • Articles of Association should be drafted containing all the by laws of the company.
  • Affidavit needs to be signed by all the members of the proposed company which declares that the legal competency to act as the subscribers.
  • Utility Bill and NOC should be taken from the owner whose address is to be used as the registered office of company. If it is not owned, a lease agreement will be attached in the form.
  • All these documents will be attached to the SPICe+ form and uploaded to the ROC website. Once properly verified the ROC will be issues a Cerificate of Incorporation and the company will start the business operations.

This establishes promoting the primary producer who is in low income group to optimize their income with collective bargaining and selling the products directly to the consumers.

Benefits of Farmer Producer Companies

Following are the benefits enjoyed by a Farmer Company:-

• Members of Company will receive the value for the produce they combinedly have contributed and supplied as determined by the directors. All this amount will be given later in the form of cash/kind/equity shares.
• Members of the producer company are entitled for getting bonus shares in same proportion of the shares with them.
• The surplus (after providing provision for payment of limited return and reserves) may be given as patronage bonus* to the members of the producer company.

Patronage Bonus means distributing the surplus income to members of producer company in proportion to respective patronage. Whereas Patronage on the other hand is participation by the members in the business activity by using these services which are offered by producer company.

Loans and Investments

As mentioned above the Company consist of individuals who are primary producers, and are in need of financial support time to time. So, a special provision under the act was passed for providing loans to the producer members. Producer companies can also provide financial assistance to the members through:-

• Credit facility: It is available for any member for a period which shall not exceed six month.
• Loans and advances: Provided to producer against the security which is repayable within a period not exceeding seven years.
• NABARD Loan:- NABARD also gives support and financial assistance for meeting the needs of the Producer Companies. In 2011, NABARD made a Rs.50 Crore Producer Organisation Development Fund (PODF) out of the operating Surplus.

Tax Benefit (Taxability of Producer Company)

Under Section 10(1) exempts agricultural income. Also the exemptions which are given in Section 10(1) for agricultural income changes on the basis of agricultural activity.

This Act does not provide any specific benefit which essentially provides a special tax benefit. But subjecting to the agricultural activity which is carried out by the company, there are certain tax benefits and exemptions which could be availed.