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Registration of producer company

PRODUCER COMPANY – AN OVERVIEW

Producer Company is a company registered under the Companies Act, 2013, which has the objective of production, harvesting, procurement, grading, pooling, handling, marketing, selling and export of primary produce of the Members or import of goods or services for their benefit.

Background

The concept of Producer Companies was introduced in 2002 by incorporating a new Part IXA (section 581A to 581ZT) into the Companies Act,1956 (“the Act”) based on the recommendations of an expert committee led by an economist, Y. K. Alagh.

 

Aim of the Committee was to

• Frame a legislation that would enable incorporation of co-operatives as companies and conversion of existing co-operatives into companies;

• Ensuring the unique elements of cooperative business with a regulatory framework similar to that of companies.

 

Objects of Producer Company (Sec 581B)

 

  1. The objects of the Producer Company shall relate to all or any of the following matters, namely: -

 

  1. Production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import of goods or services for their benefit. Provided that the Producer Company may carry on any of the activities specified in this clause either by itself or through other institution;

 

  1. Processing including preserving, drying, distilling, brewing, vinting, canning and packaging of produce of its Members ;

 

  1. Manufacture, sale or supply of machinery, equipment or consumables mainly to its Members ;

 

  1. Providing education on the mutual assistance principles to its Members and others;

 

  1. Rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its Members ;

 

  1. Generation, transmission and distribution of power, revitalization of land and water resources, their use, conservation and communications relatable to primary produce ;

 

  1. Insurance of producers or their primary produce;

 

  1. Promoting techniques of mutuality and mutual assistance ;

 

  1. welfare measures or facilities for the benefit of Members as may be decided by the Board ;

 

  1. any other activity, ancillary or incidental to any of the activities referred to in clauses (a) to (i) or other activities which may promote the principles of mutuality and mutual assistance amongst the Members in any other manner ;

 

  1. financing of procurement, processing, marketing or other activities specified in clauses (a) to (j) which include extending of credit facilities or any other financial services to its Members.

 

(2) Every Producer Company shall deal primarily with the produce of its active Members for carrying out any of its objects specified in this section.

 

Some important definitions

 

Producer Company

 

"Producer Company" means a body corporate having objects or activities specified in section 581B and registered as Producer Company under this Act.

 

Primary Produce

 

"Primary produce" means

 

(i) produce of farmers, arising from agriculture (including animal husbandry, horticulture, floriculture, pisciculture, viticulture, forestry, forest products, re-vegetation, bee raising and farming plantation products), or from any other primary activity or service which promotes the interest of the farmers or consumers ; or

 

(ii) Produce of persons engaged in handloom, handicraft and other cottage industries;

 

(iii) Any product resulting from any of the above activities, including by-products of such products;

 

(iv) Any product resulting from an ancillary activity that would assist or promote any of the aforesaid activities or anything ancillary thereto ;

 

(v) Any activity which is intended to increase the production of anything referred to in sub-clauses (i) to (iv) or improve the quality thereof ;

 

Producer

 

"Producer" means any person engaged in any activity connected with or relatable to any primary produce.

 

Producer institution

 

"Producer institution" means a Producer Company or any other institution having only producer or producers or Producer Company or Producer Companies as its member whether incorporated or not having any of the objects referred to in section 581B and which agrees to make use of the services of the Producer Company or Producer Companies as provided in its articles

 

Important Features of Producer Company

  1. Formed and registered by complying with the prescribed formalities prescribed under the Act.
  2. Legal entity and a juristic person established under the Act.
  3. A producer company being a juristic person, can acquire, own, enjoy and alienate property in its own name.
  4. No member can make any claim upon the property of the producer company as long as it is a going concern.
  5. The shares of a member of a Producer Company shall not be transferable.  They may be transferred after obtaining the previous approval of the Board to an active Member at par value.
  6. In a Producer Company, the members are not held personally responsible for the liabilities of the Producer company.
  7. A producer company being an independent legal entity can sue and also be sued in its own name.
  8. It is easier for a producer company to obtain loans and financial assistance, as it is better valued and recognized by other Government Departments.
  9. Enjoys the benefit of perpetual succession. A producer company continues to be in existence irrespective of the changes in membership.
  10. On registration, the producer company becomes a body corporate as  if it is a private company.

 

Salient Provisions relating to Producer Companies

 

Incorporation

 

Any of the following combination of producers can incorporate a producer company:

• Ten or more producers (individuals); or

• Two or more producer institutions; or

• Combination of the above two (10+2)

 

Registration

 

(a) In a Producer Company, only persons engaged in an activity connected with, or related to, primary produce can participate in the ownership. The members have necessarily to be primary producers.

(b) These companies shall be termed as “Companies with Limited Liability” and the liability of the members will be limited to the amount, if any, unpaid on the shares.

(c) The name of the company shall end with the words "Producer Company Limited"

(d) On registration, the producer company shall become as if it is a private limited company for the purpose of application of law and administration of the company (however it shall comply with the specific provisions of part IXA).

(e) There is no limit on the maximum number of members in a producer company.

 

Share Capital and Voting Rights

 

(a) The share capital of a Producer Company shall consist of equity shares only.

(b) The shares held by a Member in a Producer Company, shall as far as may be, be in proportion to the patronage of that company.

(c)  Voting when membership is 

• Only of individuals then voting rights shall be based on a single vote for every member.

• Only of producer institutions then voting rights on the basis of their participation in the business of the producer company.

• Combination of both individuals and producer institutions then voting rights shall be based on a single vote for every member.

 

Management

 

  1. Every producer company is to have at least 5 and not more than 15 directors.
  2. A full time chief executive should be appointed by the board and shall be entrusted with substantial powers of management as the board may determine.

 

Members' Benefit

  1. Members will initially receive only such value for the produce or products pooled and supplied as the Board may determine. The withheld amount may be disbursed later either in cash or in kind or by allotment of equity shares, in proportion to the produce supplied to the Producer Company during the financial year to such extent and in such manner and subject to such conditions as may be decided by the Board.
  2. Bonus shares - Members will be eligible to receive bonus shares in proportion to the shares held by them.
  3. Patronage bonus - The surplus after provision for payment of limited return and reserves may be given out as patronage bonus, among the Members. Patronage bonus means payment out of surplus income to members in proportion to their respective patronage. Patronage, on the other hand, is the use of services offered by producer companies to their members by participation in their business activities.

 

Audit & Internal Audit Requirements

 

Producer Companies shall carry out an internal audit of its accounts, at regular intervals in accordance with its articles of association and such an audit shall be carried on by a Chartered Accountant.

 

The auditor shall make an annual audit report to the members of the company on the accounts examined by him. An unnecessary stipulation is that “without prejudice to the concerned sections in the Act,” the auditors of producer companies have to specially report on some additional items such as debts due and bad debts, verification of cash balances and securities, details of assets and liabilities, loans extended to directors and details of donations and subscriptions. 
 


Benefits of Producer Company Registration

 

     a. Separate Legal Entity - A producer company is a legal entity and a juristic person established under the Act. Therefore, a          producer company has wide legal capacity and can own property and also incur debts. The members (Directors) of a producer    company have no liability to the creditors of a producer company.

 

  1. Uninterrupted Existence - A producer company has ‘perpetual succession’, that is continued or uninterrupted existence until it is legally dissolved. A producer company, being a separate legal person, is unaffected by the death or other departure of any member but continues to be in existence irrespective of the changes in membership.

 

  1. Owning Property - A producer company being a juristic person, can acquire, own, enjoy and alienate, property in its own name. No member can make any claim upon the property of the producer company as long as it is a going concern.

 

    d. Better Credibility - A producer company enjoys better credibility when compared to unregistered producer organizations. Producer companies are registered and monitored by the Central Government. Producer Organization are on the other hand governed and monitored by State Governments.

 

  1. Acceptance of deposits - A producer company can accept deposit in the form of RD/FD, and give maturity as well as distribute loans to its farmer/agriculturist members, and charge reasonable interest from them.

 

  1. Tax Benefits - It is to be noted that though the IT Act does not per-se give any special benefits or exemptions to Producer Companies as such, but depending upon the kind of agricultural activity it carries on, certain tax benefits can be availed.

For instance, if green tea leaves are grown and sold directly without any further processing, the income derived from such an activity is considered as agricultural income under the IT Act and such income is 100 % tax free, but if the green tea leaves are further processed and tea is manufactured only 60% of the income derived from such an activity is considered as agricultural income and the tax exemption can be availed only on the said 60% of such income. Thus, it is clear that the tax exemption to a producer company depends upon the activity it carries on.

 

  1. NABARD- Producer Organization Development Fund (PODF) - In 2011, NABARD has set up a Rs.50 crore Producer Organization Development Fund (PODF) for supporting producer organizations and adopting a flexible approach to meet the needs of the producers. Under this scheme, financial support in the form of grant and/or loans are provided for any registered Producer Organization, Producer Company, Producers Cooperatives, Registered Farmer Federations, MACS (Mutually aided Cooperative Society), Industrial Cooperative Societies and other registered federations set up by producers. The PODF will be used to support Producer Organizations or Producer Companies by providing credit support, improving capacity and building market linkage. The objective of the fund is to meet end to end requirements of Producer Organizations as well as to ensure their sustainability and economic viability.

Basic Setup Requirements for Producer Company

 

1. Any of the following combination of producers can incorporate a producer   company:

  1. ten or more individuals, each of them being a producer; or
  2. two or more producer institutions; or
  3. combination of the above two (10+2)

 

2. Shall have minimum 5 directors and maximum 15 directors. The limit of maximum number of members is not applicable to these Companies.

 

3. Minimum initial paid-up authorized capital – 5 lakh

 

4. A registered office address.

 

5. Director Identification Number (DIN) and Digital Signature Certificate (DSC) for Directors.

 

6. DSC of shareholders.

Procedure:

1. Obtaining DSC and DIN

 

DSC is the digital signature used for electronic submission of the company related documents and is granted to anyone authorized person of the proposed company. DIN is the identification number mandatory required for each of the proposed directors of the Indian company. DIN is issued by the MCA. Both DSC and DIN are mandatory and to be obtained before initiating further steps.

2. Name Approval

 

  1. A Producer Company should be named using the following suffix “Producer Company Limited” appropriately indicating its status of Producer Company.
  2. Any suitable name can be selected for registration, subject to certain guidelines, which include
  3. The promoters should select six alternative names in the order of priority.
  4. The names should indicate, as far as possible, activity as stated in the main objects of the proposed company. The names should not too closely resemble the name of any other registered company.
  5. The names selected should not violate the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950.
  6. The ROC will provide an online generated written confirmation of the name he would allow the proposed Indian company to use.

 

3.Fee Payable to Government Authorities

 

On receiving completed details, we will provide the fee payable towards

  • Registration with the ROC; and
  • Fee for stamping of MoA and AoA as payable to the State Government

 

4.MOA and AOA

 

An important step in the formation of the company is preparation of the MOA. It is the charter of the company and it lists the basic conditions on which the company is incorporated. AOA contain rules, regulation and by-laws for the general management of the company. It is compulsory to get the AOA registered along with the MOA. The Articles are subordinate to the MOA.

5. Registration

 

  1. For incorporation of producer companies, Form INC-7 shall be used.
  2. MOA and AOA will be drafted as per regulations.
  3. Affidavit from Subscribers and First Directors In Inc 9
  4. Consent to act as director in form – DIR-2.
  5. Payment of prescribed registration and filing fee
  6. Certificate of Incorporation: The ROC will verify the documents and thereafter register the company by issuing a Certificate of Incorporation, which brings the company into existence as a legal entity.

Requisite Documents

For the purpose of producer company incorporation, the following documents are required:

  • 1 (One) Passport size photograph of each director
  • Identity proof of each director - PAN Card (Mandatory in case of Indian National, If foreign National then Passport is mandatory), duly notarised and attested by an Indian Embassy
  • Residence Proof of each director (any of the following)
  • Driving License
  • Passport
  • Telephone Bill
  • Electricity Bill
  • Bank Statement (Attested by bank manager)
  • AADHAR card
  • Stability Proof: Utility Bills of not older than 2 months or current bank statement (Compulsory)
  • Consent to act as Directors (Affidavit on stamp paper of Rs. 10/-)
  • Proof of address in which the company will get itself registered:

 

Pls submit proof of address as per following:

 

In case of ownership by Director/other company

      1. Copy of registered ownership deed, or
      2. Copy of Municipal/KMC Tax Receipt, or
      3. Title search report by a competent lawyer in case tax receipt is prior to 15 days

          of date of filing incorporation.
      4. NOC from the owner.

      5. Any Utility Bill in the name of the owner, not exceeding 2 months
 

In case of Lease property/rented property
       1.Copy of registered Lease deed/Rent agreement.
       2. Whether sub lease/sub tenancy is provided in the agreement, if so under

            which clause.
       3. NOC from the Lessee/Lessor/tenant.

       4. Any Utility Bill in the name of the owner, not exceeding 2 months.

       5. Copy of Municipal/KMC Tax Receipt.

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thanks for Sharing this information though i am understood right now that what really is producer company registration and what are the benefits of having it

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need full cost breakup for producer company

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Any rule had been changed for registration of farmer organisation.Progress needed step wise for registration.

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