A Company that is registered with the Ministry of Corporate Affairs (MCA), for the purpose of agricultural production and processing activities, is called a Farmer Producer Company. It comprises a committee of a minimum of 10 people and 2 institutions.
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In generic terms, Producer Companies can be said to be a way to improve the standard of living of those involved in the agricultural sector. Such companies are deemed to possess the goodness of co-operatives and the dynamicity of companies. A producer company is a company incorporated under the Companies Act 2013 (formerly the Companies Act 1956),
They shall carry on prescribed activities as mentioned in Section 581B of the Companies Act 1956, to name a few, Production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import goods for their benefit Processing including preserving, drying, distilling, brewing, venting, canning, and packaging of the produce of its members Manufacture, sale, or supply of machinery, equipment, or consumables mainly to its Members. Promoting mutual assistance, financial services, and welfare measures of producers or their primary produce.
Formation and Registration
Section 581C of the Companies Act, 1956 provides for the association of 10 or more people who are producers. Two or more producer institutions or a combination of the two for the formation of a producer company. The registrar after being satisfied that all the required documents necessary for registration are complied with may issue a certificate within 30 days of receipt of such documents. Producer companies are the ones that are limited by shares as the liability of the members is limited. It is limited to the number of shares purchased by them.
Objectives of the farmer producer company
The main objective of the farmer producer company is to facilitate the formation of co-operative businesses as companies and to make it possible to convert the existing co-operative business into companies.
As per the Act, the objectives of a producer company should relate to all or any of the following matters: (as given in the law)
- a) Production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary production 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.
b) Processing including preserving, drying, distilling, brewing, venting, canning, and packaging of the produce of its Members.
c) Manufacture, sale, or supply of machinery, equipment, or consumables mainly to its Members.
d) Providing education on the mutual assistance principles, to its Members and others.
e) Rendering technical services, consultancy services, training, research and development, and all other activities for the promotion of the interests of its Members.
f) Generation, transmission, and distribution of power, revitalization of land and water resources, their use, conservation, and communication relatable to primary produce.
g) Insurance of producers or their primary produce.
h) Promoting techniques of mutuality and mutual assistance.
i) Welfare measures or facilities for the benefit of Members as may be decided by the Board.
j) 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.
k) Financing of procurement, processing, marketing, or other activities specified in clauses (a) to (j) which include extending credit facilities or any other financial services to its Members.
Authorized activities of producer companies
The Producer Company is required to deal with the produce of its members and is authorized to carry on any of the following activities:
- Processing (processing also includes, preserving, brewing, venting, drying, distilling, canning, and packaging) of the produce of its members;
- Manufacture, sale, or supply of equipment, machinery, or consumables to its producer members;
- To provide education on the mutual assistance principles to the producer members of the producer company and others;
- To render consultancy services, technical services, training, R&D, and all other required activities for promoting the interests of producer members;
- Generation, transmission, and distribution of power, conservation, and communication relatable to primary produce, revitalization of land and water resources,
- Insurance of the primary produce and its producer;
- To promote the techniques of mutuality and mutual assistance;
- The welfare of members as may be decided by the Board;
- Financing procurement, marketing, processing, or other activities such as extending credit facilities or any other financial assistance to its producer members.
- Any other activity (ancillary or incidental to the main objectives of the producer company) to promote mutual assistance amongst the producer members and the lines of principles of mutuality.
Note: Primary produce has been defined under the Companies Act 1956 as produce arising from agriculture by a farmer which includes animal husbandry, floriculture, horticulture, viticulture, pisciculture, re-vegetation, bee raising, forestry, forest products, and farming plantation products, the produce of hand-loom, handicraft, and other cottage industries.
- Any 10 or more producers (individuals) can join together to form a production company but there is no upper limit on the number of members.
- Or, any 2 or more producer institutions can form a producer company.
- A minimum paid-up capital is required to incorporate a producer company.
- There should be a minimum of 5 directors (maximum of 15) in a producer company.
- It can never be converted into a public company however it can be converted into a multi-state co-operative society.
Advantages of a producer company registration:
- A Producer Company’s ownership and membership are limited to “principal producers” or “Producer Institution/s,” and member equity cannot be sold. As a result, no one can take over the business or deprive the primary producers of their livelihood.
- The minimum number of producers required to form a PC is ten, but the maximum number of members is unlimited, and membership can be raised as needed. This makes it simple for even ten people to form a producer company.
- Except for the clauses listed in the Producer Company Act from 581-A to 581-ZL that distinguish it from a regular private or limited company, the provisions of the Private Limited Company Act will apply to producer firms (refer to the Producer Company Act for details). This gives a producer company a professional structure.
- The members’ liability is restricted to the unpaid amount of the shares they own. As a result, the member’s personal assets are protected from business losses.
The Income Tax Act does not specify any specific tax benefit which essentially provides special tax benefits or exemptions to producer companies by its definition. But subject to the agricultural activity carried out by the producer company, certain tax benefits and exemptions can be availed.
For example, income derived from selling the grown green tea leaves is an agricultural income under the Income Tax Act and it is 100 % tax-free. However, if the tea leaves are further processed for the manufacturing of tea, only 60% of such income will be considered agricultural income and 40% of such income will be taxed. Thus, it is apparent that the tax benefit and exemption to a producer company are dependent upon the activity it carries on.
Documents and process required for producer company registration & How we can help?
Compliance with regulations: We can help producer companies stay compliant with local and national regulations, such as labor laws, environmental regulations, and tax laws. We can also help with obtaining permits and licenses.
- The first step is to get all of the directors to sign a Digital Signature Certificate (DSC). The following documents are necessary to receive a DSC
- Aadhar Card- Email ID -Permanent Account Number – Contact Number- Photo
- After receiving the DSC, file form DIR – 3 along with self-attested identity evidence, address proof, and a photo to obtain the Director Identification Number (DIN).
- The production company’s name must then be finalized. To do so, submit Form INC – 1 to the Registrar of Companies (ROC), detailing six names in order of preference as well as their importance. The words PRODUCER COMPANY must be after the name.
- Once the above steps are completed, the following documents need to be prepared for the company incorporation:
- MOA and AOA need to be drafted for the incorporation of a producer company.
Contract drafting and negotiation: We can help producer companies by drafting and negotiating contracts with suppliers, distributors, and other parties. This can help ensure that the company is protected in case of disputes or breaches of contracts.
- A professional declaration is required to be written in the INC–8 format.
Risk management: We can help producer companies identify and mitigate legal risks, such as intellectual property disputes, product liability claims, and employment disputes. We can also help create risk management plans and policies.
- All of the proposed company’s subscribers must sign an affidavit stating their legal capacity to participate as shareholders.
Dispute resolution: We can help resolve disputes between the producer company and other parties, such as suppliers, distributors, or customers. We can provide legal advice and representation in mediation, arbitration, or litigation.
- The owner whose address will be utilized as the company’s registered office must provide a utility bill and a NOC. A lease agreement will be attached to the form if it is not owned.
- Form DIR – 2 and DIR – 8 will be used by the directors to grant their consent to act.
- All written documents will be attached to Form INC-7, INC-22, and DIR-12, and uploaded to the ROC website. The ROC will issue a Certificate of Incorporation after sufficient verification, and the company can begin operations.
Intellectual property protection: We can help producer companies protect their intellectual property, such as trademarks, patents, and copyrights. We can also help with licensing agreements and litigation related to intellectual property.