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Producer Company Registration - An Insight

As we know that the Agricultural Industry is considered as the backbone of our Indian Economy because 62 percent of the total population directly or indirectly relies on the agricultural activities for their living. However, our Indian Farmers are not only unorganized but are also in a deplorable state as they are unable to afford advanced farming technologies due to a shortage of funds. Hence, it ends up in struggling to get their share of profit. As a consequence, more than 12 percent of Indian farmers choose to commit suicide.

Keeping into consideration their miserable and pitiable state, the government finally decided to formulate an expert committee, headed by Mr. Y.K. Alagh to examine into the matter. Further, in the year 2002, the committee formulated, brought the concept of Producer Companies in the Indian Society. Since then, the Central Government is working hard to elevate the status of Indian Producers (includes farmers and agriculturalists)

What is a Producer Company?

A Producer Company is a blend of a Cooperative Society and a Private Company and is a company incorporated under the provisions of Part IX-A of the Companies Act, 1956, and also Section 465(1) of the Companies Act, 2013 to deal with the primary production of its active members related to farming. Further, the main objective or the purpose of a Producer Company includes selling, distribution and exporting of primary output.

Furthermore, a Producer Company can be incorporated either with ten or more members being producers, or with two or more producer institutions, or by its combination. Moreover, like other business structures, the liability in a Producer Company is limited to the extent of the Unpaid Share Capital by its members. Therefore, a producer company is considered to be a Private Limited Company under the Companies Act, 2013. However, the ceiling on the maximum members does not apply to the same.

Which Law Governs a Producer Company?

The incorporation and regulation of Producer Company is governed and regulated by the provisions of Sections 581A to 581ZL of the Companies Act, 1956, read with the Companies Act, 2013, and the rules made thereunder.

What are the Objectives of a Producer Company?

A Producer Company aims at encouraging all the small-scale farmers so that their level of savings can increase along with the power to opt for the latest and advanced technologies in order to lead better and improved lives. The following listed are the objectives or the reasons behind for incorporating a Producer Company:

  • Production of the primary agricultural produce.
  • Procurement of the primary agricultural produce.
  • Harvesting and Grading of the primary agricultural produce.
  • Poling and Handling of the primary agricultural produce.
  • Marketing of the primary agricultural produce.
  • Selling or Import/Export activities concerning agricultural produce.

Further, the main objective of a producer company is to simplify the formation of a Co-operative business as a private company and also to make it probable to convert an existing co-operative business into a private company.

What are the Advantages of a Producer Company Registration?

The advantages or the benefits annexed with the registration of a Producer Company is summarised below:

  • Producer Company enjoys the status of a separate legal entity.
  • The liability of the members of a producer company is limited to the extent of the unpaid amount on the shares subscribed.
  • Producer Company provides greater credibility to its members as compared to any unregistered organization of farmers or agriculturalists.
  • Producer Company is providing the benefit of easy management. And in case the said company wants to change in its Board of management, the same can be informed to ROC (Registrar of Companies) just by filling simple forms.
  • A registered producer company can easily acquire or sell property in its name.
  • A producer company is qualified to accept deposits or give loans to the farmers at a reasonable rate of interest.
  • A producer company is eligible to accept deposits in the form of FD (Fixed Deposits) or RD (Recurring Deposits).

What are the Basic Requirements for obtaining a Producer Company Registration?

According to section clause (1) of section 581C of the Companies Act, 1956, either of the following listed combinations can incorporate a Producer Company -

  • Ten or more individuals are required to incorporate a Producer Company, or,
  • Two or more institutions are needed to incorporate a Producer Company, or,
  • A combination of both individuals and institutions is required for registering a Private Company.

Further, the following listed are the requirements that need to be complied with from the management’s point of view:

  • A Minimum of 5 or a maximum of 15 directors are required for the incorporation of a Producer Company.
  • There should be a full-time COO (Chief Executive Officer) to look after the management and operations of the company.
  • A Minimum of Rs 5 Lakhs is required as the Paid-up Share Capital.
  • A Producer Company is qualified to possess only Equity Share Capital.
  • A Producer Company is required to conduct at least four board meetings in a Financial Year. Moreover, the time gap between the two meetings must be three months.

What are the Authorised Activities that a Producer Company can Perform?

The authorized activities for a producer company are mentioned under section 581 B of the Companies Act, 1956, the detailed list is enumerated below:

  • Production, Procurement, Harvesting, Pooling, Grading, Marketing, Handling, Selling, or Export of the primary agricultural produce of the Members or Import produce for their benefit.
  • Processing together with preserving, distilling, drying, venting, brewing, canning, and Packaging of the agricultural produce of its members.
  • Manufacturing, selling, or supplying the equipment, machinery, or consumables primarily to its members.
  • Offering education based on the principle of mutual assistance to its members and others.
  • Delivering consultancy services, technical services, training, research and development (R&D), and all other the activities required for the promotion of the interest of its members.
  • Generation, transmission, and distribution of the power.
  • Revitalization of both land and water resources regarding their use, conservation, and communications relevant to primary produce.
  • Insurance of either the producers or their primary agricultural produce.
  • Promoting techniques based on the principle of mutual assistance.
  • Welfare facilities or measures for the benefit of members as may be determined by the Board.

What are the Mandatory Requirements regarding a Producer Company?

The requirements to obtain Producer Company Registration are explained below:

  • In a Producer Company, only those individuals are eligible to participate in ownership or who are engaged in any activity related to primary produce.
  • All the members of a Producer Company must mandatorily be primary producers.
  • The liability of a member of a producer company is limited to the extent of the unpaid amount on the shares subscribed.
  • The name of a producer company must end with the suffix "Producer Company Limited."
  • Producer Company is deemed as a Private Company for the purpose of application of the law.
  • In the case of a Producer Company, there is no limit prescribed regarding the maximum number of members.

What are the Documents Required for Obtaining Producer Company Registration?

The documents that are needed for obtaining Registration of a Producer Company are listed below:

From all the Directors and Shareholders

  • Copy of either PAN Card, Voter ID Card, Passport
  • Copy of the Latest Bank Statement
  • Copy of the Telephone Bill or Mobile Bill
  • Passport-sized photographs of all the Shareholders and Directors

For the Proposed Registered Office

  • Copy of any Utility Bill, but it should not be older than two months.
  • Scanned Copy of the Rent Agreement together with the NOC (No-Objection Certificate) from the actual owner.
  • In case the said property is owned, then the ownership documents or the sale deed for the same.

What is the procedure for obtaining Registration of a Producer Company?

Producer Company Registration Process

The procedure of registering a Producer Company is quite similar to that of a Private Limited Company. Further, for a Producer Company Registration, an application is required to be filed with the ROC (Registrar of Companies) in the prescribed format together with the necessary documents. Furthermore, on receiving the application, the registrar of companies is then required to scrutinize all the documents submitted and then issue the COI (Certificate of Incorporation).

The following listed are the steps involved in the process for obtaining registration of a Producer Company:

Obtain DSC and DIN

The first and foremost step in the procedure is to obtain DSC (Digital Signature Certificate) and DIN (Director Identification Number). Further, DSC is needed to sign the documents electronically or digitally, and the Certifying Authority issues the same. Also, DIN is required for all the proposed directors of the company. Furthermore, the same can be acquired by just filing the SPICE form as there is no need to file a separate Form.

Application for the Name Approval

For reserving the name of a Producer Company, the members of the said company are required to file a RUN (Reserve Unique Name) form with the ROC. After submitting the form, the ROC will then verify the availability of the name proposed by the members. Further, once the name of the company is approved, the certification of incorporation is required to be filed within twenty days.

Drafting of MOA and AOA

After obtaining the name approval, an application for incorporation is required to be filed in SPICE form together with all the necessary documents such as the MOA (Memorandum of Association), AOA (Article of Association), affidavit signed by all the members, and the declaration regarding the competency to act as legal subscribers of the company, with the respective ROC (Registrar of Companies).

Certificate of Incorporation

After verification of the documents and the application for incorporation submitted, a Certificate of Incorporation (COI) is issued by the ROC, and the same takes around seven days.

What are the Rules and Regulations prescribed for the Easy Availability of Loans and Credits?

Rules Regulation for Producer Company

A producer company is incorporated to provide timely and secure financial assistance to its members. Thus, some special provisions were prescribed in the companies act for the sanctioning of loans to the members of a Producer Company.

The ways in which a Financial Assistance can be provided to the members of a Producer Company is listed below:

Credit Facility

The credit facility will be offered to a member of a producer company only for a period not exceeding more than six months.

Loans and Advances

Loan and advances will be provided to the members against some security for a period not exceeding more than seven years starting from the date of loan disbursement.

NABARD Loan

NABARD is the acronym for the National Bank for Agriculture and Rural Development). Further, NABARD provides financial assistance for meeting the requirements of a Producer Company. Moreover, In the year 2011, the Producer Organization Development Fund (PODF) of worth Rs 50 Crore has been set-up by the NABARD out of its operating surplus.

Why is a Producer Company known as Hybrid Structure?

The reason as to why a producer company is considered as a hybrid structure of a Co-operative Society and Private Limited Company is that, this company combines the goodness of a co-operative enterprise and efficiency and vibrancy of a private company and also accommodates the unique facets of a co-operative business with the regulatory framework parallel to that of a Private Company.

What happens if in case a member of a producer company ceases to be a primary producer?

If in case any member of a producer company ceases to be a primary producer, then the directors of the said Producer Company will give directions for the surrender of shares at par value or at the value ascertained by the directors along with any special right attached to it. Further, the same will be done only when a written notice is served by the said member, and also, an opportunity of being heard is provided to him.

What are the Internal Audit Requirements for a Producer Company?

A Producer Company is required to undergo internal audits at regular intervals by a Practising Chartered Accountant in accordance with the company’s AOA (Articles of Association).

Further, an annual audit report will be made by the auditor only after doing proper examination and investigation of the accounts to the members of a producer company.

Further, an Auditor is also required to make a report on some additional items like the outstanding debts and bad debts, an inspection of the cash balance, details and particulars of the assets and liabilities, loans offered to the directors and donations received, and subscriptions made.

What are the Tax Benefits Availed by a Registered Producer Company?

A registered producer company enjoys various tax benefits such as the exemption from agricultural income provided under section 10(1) of the Income Tax Act, 1961. Further, the exemption varies on the basis of activities carried out by the farmers or agriculturalists, such as the agricultural income generated is exempted 100 percent, whereas the income generated from the production of Tea is 60 percent exempted as per the law.

How is a Producer Company distinct from a Public Limited and a Private Limited Company?

Description

Producer Company

Private Limited Company

Public Limited Company

Object

The object of a Producer Company is specified under Section 581B of the Companies Act, 1956.

Any lawful object

Any lawful object

Name of the Company

The name of a Producer company must end with the suffix “Producer Company Limited.”

The Name of a Private Company must end with the suffix “Private Limited Company.”

The Name of Public Company should end with the suffix “Public Limited Company.”

Members

Ten or more individuals, or two or more institutions, or their combination. However, there is no restriction prescribed on the maximum number of members

A minimum of two and a maximum of two-hundred.

A minimum of seven, and there is no restriction prescribed on the maximum number of members.

Directors

A Minimum of 5 and a maximum of 15 directors

A Minimum of 2 and a maximum of 15 directors

A Minimum of 3 and a maximum of 15 directors

Cessation of Membership

A person ceases to be the member of a Producer Company in the following listed cases -

  1. Ceases to be a Primary Producer
  2. His business interest is in conflict with the business of a Producer Company.

1.     Buyback of shares, or

2.     transfer of shares, or

3.     Non-payment of either the allotment or the call money, or

4.     on the death of a member, or

5.     if a member becomes insolvent, or

6.     by an order passed by the court etc.

1.     Buyback of shares, or

2.     transfer of shares, or

3.     Non-payment of either the allotment or the call money, or

4.     on the death of a member, or

5.     if a member becomes insolvent, or

by an order passed by the court etc.

Frequently Asked Questions

A minimum of 5 and a maximum of 15 directors are needed to register a Producer Company in India.

The minimum capital requirement to register a Producer Company is Rs 5 lakhs.

In India, any individual or organization can become a member of a Producer Company.

Yes, as per the provisions of Companies Act, 2013, it is obligatory for a Producer Company to gets its accounts audited.

Yes, a Foreign National or NRI can become a Director in a Producer Company. The only requirement is to obtain DIN (Director Identification Number). However, a producer company must have at least one director who is a resident of India. The term “resident of India” denotes the person who has lived in India for at least 182 days in the last financial year.

No, there is no need for you to be physically present at our office to register a Producer Company as the entire registration process is online based. All you need to submit the necessary documents as required in the portal.

Yes, after obtaining the prior approval from directors, a member of a Producer Company is eligible to transfer his/her shares, together with the special rights (if in case any).

Usually, we ensure fast and speedy registration. However, the same also depends upon the documents submitted by the applicant, and it takes around a period of 30 days.

All the Producer Company members need to nominate one person each in the prescribed manner as the nominee. Further, the same should be done within 3 months of becoming a member of a producer company.

10. Whether a producer company is a public or private company?

There are five types of Producer Company prevalent in India, which are Production Businesses, Marketing Businesses, Technical Service Businesses, Financing Businesses, and Infrastructure Businesses.

The basic conditions to incorporate a producer company are 10 or more individual, 2 or more producer, or a combination of both.

A director can hold his/her office in a producer company for a minimum of 1 and a maximum of 5 years.

There are several benefits or advantages of a producer company in India. Some of them are a separate legal entity, limited liability, greater creditability, easy management, less compliance, sue or be sued, acquire property, accept deposits, etc.

A producer company must have a minimum of 4 Board Meetings in a Financial Year. Further, the time gap between the two board meetings must not exceed a period of 3 months.

According to the Articles of Association, a Producer Company needs to get its book of accounts audited by an Internal Auditor on a regular basis.

If a producer company fails to commence its business operation within one year of its registration, then the name of the said company will be struck off from the Register of Companies by the Registrar.

A producer company can provide assistance in the form of credit facility, NABARD loans, and loans and advances.

The process of incorporation of a producer company is the same as that of any other company. Form SPICe is filed for the registration of a Producer Company.

One of the significant tax benefits to a producer company is that the agricultural income earned is fully exempt, as per section 10(1) of the Income Tax Act, 1961.

No, there is no need to pay any extra charge, our experts will mail you an all-inclusive invoice, with no hidden charge.

Yes, a producer company is a separate legal entity, i.e., distinct from its member. The only reason a producer company will cease to exist (other than winding up it voluntarily) is if the creditors/ court force its closure or the annual compliances are not met on time.

Yes, it is necessary for a Producer Company to add suffix “producer limited company” after the name of the company.

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