Producer Company Registration

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What is a Producer Company?

A producer company is a legally recognized entity comprising farmers and agriculturists who come together with the common goal of enhancing their quality of life and ensuring the prosperity of their agricultural endeavors. As per the provisions of the Companies Act of 2013, a producer company can be established by a minimum of 10 individuals or more, or by two or more institutions, or through a combination of both (involving 10 individuals and two institutions).

The primary business objectives of a producer company typically revolve around one or more of the following activities:

  • Procurement
  • Production
  • Harvesting
  • Grading
  • Pooling
  • Handling
  • Marketing
  • Selling
  • Export

Steps to Establish a Producer Company

The process of incorporating a producer company aligns closely with the procedures for establishing any other company in accordance with the Companies Act of 2013:

  1. Digital Signature Certificate (DSC) and Director Identification Number (DIN): The initial step involves obtaining DSC and DIN for the first Directors of the proposed Producer Company.
  2. Name Reservation Application: Following the acquisition of DSC and DIN, you can submit an application for the reservation of the company’s name to the Registrar of Companies (ROC). The chosen name must conclude with ‘Producer Limited Company.’
  3. Incorporation Application: Once the ROC approves the selected name, you can proceed to file the incorporation application in the prescribed format for establishing the Producer Company.
  4. Certificate of Incorporation: If the ROC is content with the application for incorporation, they will issue a Certificate of Incorporation for the Producer Company.
  5. Operational Structure: The operational structure of a producer company resembles that of a Private Limited Company. However, unlike Private Limited companies, there are no restrictions on the number of members in a Producer Company.
  6. Public Limited Company Distinction: It’s important to note that even if the Producer Company’s name incorporates the words “Producer Limited Company,” it does not, under any circumstance, transform into or be considered a public limited company.

What’s Included:

  1. Director Identification Numbers (DIN) for 5 Directors
  2. Digital Signatures (DSC) for 5 Directors
  3. Drafting of Memorandum and Articles of Association
  4. Incorporation Fees*
  5. Approval for Company Name
  6. Certificate of Incorporation
  7. Company PAN and TAN
  8. Registration for EPFO, ESIC, and Professional Tax*
  9. Assistance with Bank Account Opening Kit

Required Documents:

  • PAN Card:
  • PAN card of Shareholders and Directors. In the case of Foreign Nationals, a Passport is mandatory.
  • ID Proof (Any 1):
  • Aadhaar Card
  • Passport
  • Voter ID
  • Driving Licence
  • For both shareholders and Directors.
  • Address Proof (Any 1):
  • Bank Statement
  • Mobile/Telephone Bill
  • Electricity Bill
  • For both shareholders and Directors.
  • Photograph:
  • Passport-sized photos of shareholders and Directors.
  • Office Address Proof (Any 1):
  • Electricity Bill
  • Mobile Bill
  • For the company’s registered office.
  • No Objection Certificate (NOC) from Owner:
  • A No Objection Certificate from the owner of the office premises.
  • Rent Agreement (if applicable):
  • Rent agreement for the office space if it is a rented property.

Basic Requirements for Establishing a Producer Company

  1. Private Limited Company: All producer companies operate as private limited companies.
  2. Membership Flexibility: While they are private limited companies, producer companies can have more than 50 members.
  3. Minimum Founders: A minimum of 10 individuals, who are producers themselves, or any combination of at least two producer companies, are required to initiate the formation of a producer company.
  4. Directorship: Each producer company must have a minimum of 5 directors, but not more than 15 directors.
  5. Inflexibility in Conversion: Producer companies cannot be converted into other business structures such as Private Limited companies, Public Limited companies, LLP, etc.
  6. Public Conversion Exception: Although they cannot become public companies, producer companies can be transformed into multi-state co-operative societies.
  7. Naming Convention: Every producer company must include the words “Producer Company Limited” at the end of its name.
  8. Minimum Capital Requirement: A minimum paid-up capital of Rs. 5 lakh is mandatory for producer companies.
  9. Equal Voting Rights: Voting rights within these companies adhere to the principle of “one man-one vote,” regardless of the shareholding in the producer company.

Tax Benefits for Producer Companies

  • Under the provisions of the Income Tax Act, 1961, agricultural income is exempted from taxation under section 10(1). However, it’s important to note that the extent of this exemption for agricultural income can vary depending on the specific agricultural activities conducted.
  • While the Income Tax Act doesn’t outline specific tax benefits or exemptions exclusively tailored for producer companies by definition, certain tax advantages and exemptions can be availed based on the nature of the agricultural activities carried out by the producer company.
  • For instance, income generated from the sale of freshly harvested green tea leaves is classified as agricultural income under the Income Tax Act, and it enjoys a 100% tax exemption. However, if these tea leaves undergo further processing to manufacture tea, only 60% of the income will be considered as agricultural income, and the remaining 40% will be subject to taxation.
  • In summary, the tax benefits and exemptions accessible to a producer company are contingent upon the specific activities it engages in, particularly in the realm of agriculture.

Government Initiatives for Farmer Producer Companies

The Small Farmers Agri-business Consortium (SFAC) was entrusted with the responsibility by the Department of Agriculture and Cooperation, Ministry of Agriculture, Government of India, to facilitate the formation of Farmer Producer Organizations (FPOs). This initiative, which commenced in 2011-12 under the Central Sector Schemes of Vegetable Initiative for Urban Clusters (VIUC) and Integrated Development of 60,000 Pulses Villages in Rainfed Areas, has since expanded its scope. It now encompasses special FPO projects initiated by certain State Governments, funded through the Rashtriya Krishi Vikas Yojana (RKVY), the National Demonstration Project under the National Food Security Mission (NFSM), and the Mission for Integrated Development of Horticulture (MIDH).

Several Central Sector Schemes, including the National Vegetable Initiative for Urban Clusters (VIUC), Mission for Integrated Development of Horticulture (MIDH), and National Food Security Mission (NFSM), allocate funds to the States, with provisions for promoting Farmer Producer Organizations (FPOs). States develop Annual Action Plans, subject to approval by the State Level Sanctioning Committee (SLSC), chaired by the Chief Secretary. Many States allocate adequate funds within these action plans to support FPO promotion. Subsequently, upon approval, several States collaborate with SFAC and transfer the required funds for FPO promotion.

To bolster the capital base of FPOs, SFAC introduced the “Equity Grant and Credit Guarantee Fund Scheme for Farmers Producer Companies” on January 1, 2014. This scheme comprises two principal components:

a) Equity Grant Scheme: Under this scheme, registered Farmer Producer Companies (established under the special provisions of the Companies Act) can receive a grant of up to Rs. 10.00 lakh to match the member equity raised by the organization. This infusion enhances the FPC’s equity base, enabling them to seek working capital from financial institutions.

b) Credit Guarantee Fund (CGF): The CGF extends an 85% cover for loans provided by banks to Farmers Producer Companies without the need for collateral, up to a maximum of Rs. 1.00 crore. This initiative facilitates access to crucial financial resources for FPOs.

What is the Legal Status of a Producer Company?

The legal status of a Producer Company is characterized by several key attributes:

  1. Personhood: Upon incorporation and from the date specified in the Certificate of Commencement (CoC), the Producer Company is recognized as a legal entity in the eyes of the law.
  2. Perpetual Succession: The Producer Company enjoys perpetual succession, which means it continues to exist irrespective of changes in its membership. It can only be dissolved through a legal process.
  3. Common Seal: A Producer Company possesses a common seal, which is affixed to all documents executed on its behalf. This seal is typically applied in the presence of a director and is signed by the authorized signatory or signatories.
  4. Property Ownership: The Producer Company is vested with the authority to hold properties in its own name and has legal rights over them.
  5. Contractual Capacity: It has the capacity to enter into contracts in its own name, just like any other legal entity.
  6. Legal Standing: A Producer Company has the ability to initiate legal actions, enabling it to sue others, and it can also be subject to legal actions brought by others.

In essence, a Producer Company possesses the legal capacity to engage in various activities and transactions, akin to any other legally recognized entity with contractual and legal standing.

Time and Cost for Registration

The registration process for a Producer company typically spans a duration of 2 to 6 months. In terms of expenses, the estimated cost can range from approximately Rs. 40,000 to Rs. 50,000.

Authority of the Members in the Company

Members of the company wield their authority primarily through General Meetings. These General Meetings hold the power to undertake the following actions:

  • Approve the company’s Budget and adopt its Annual Accounts.
  • Determine the extent of withheld prices.
  • Approve the patronage bonus.
  • Authorize the issuance of bonus shares.
  • Appoint an auditor.
  • Declare dividends and make decisions concerning the distribution of patronage.
  • Amend the Memorandum of Association (MoA) and Articles of Association (AoA).
  • Sanction any specific acts or matters reserved in the articles for the decision of the members.

Voting Rights of Members

The voting rights in a Producer Company are structured as follows:

  • If a Producer Company consists solely of individual members or a combination of individual members and producer institutions, each member is entitled to one vote.
  • In the case of a Producer Company composed exclusively of producer institutions, voting rights are determined based on their participation in the business of the Producer Company in the previous year.
  • The Producer Company has the option to limit voting rights exclusively to its active members, provided such restriction is authorized by its Articles of Association.

Board of Directors Allowed

A producer company is permitted to have a board of directors comprising a minimum of 5 directors and a maximum of 15 directors.

Director Tenure

Directors appointed by the Annual General Meeting (AGM) serve a term of at least one year and a maximum of five years.

Advantages of a Producer Company

There are several advantages associated with a Producer Company:

  • A Producer Company combines elements of a Private Limited Company and a Cooperative Society, benefiting from professional management akin to a Private Limited Company while retaining the mutual benefits of a Cooperative Society.
  • Ownership and membership in a Producer Company are exclusively held by “primary producers” or “Producer Institutions,” and member equity cannot be traded. This safeguards the organization from takeovers or exploitation.
  • The clauses of a Private Limited Company apply to Producer Companies, except for the specific clauses outlined in the Producer Company Act from 581-A to 581-ZL, which distinguish it from a standard private or limited company. This framework provides a professional structure for Producer Companies.
  • Members’ liability is limited to the unpaid amount of the shares they hold, safeguarding their private assets from company losses.
  • The minimum paid-up capital requirement of Rs. 1 lakh and minimum authorized capital of Rs. 5 lakh for a Producer Company make it accessible for mobilizing smaller amounts of capital. This ease of capital mobilization facilitates the establishment of Producer Companies even by a group of 10 individuals.
  • Producer Companies cannot have government or private equity stakes, preventing them from becoming public or deemed public limited companies. This ensures professional autonomy.
  • Producer Companies have nationwide operational scope, offering flexibility to expand and conduct business professionally across the entire country.

Limitations of a Producer Company

While Producer Companies offer unique advantages, they also come with certain limitations:

  1. Mandatory Registration: A Producer Company must be registered in accordance with Part IXA of the Indian Companies Act 1956, as referenced in Section 465(1) of the Companies Act 2013. Non-registered entities do not enjoy the benefits of the Act.
  2. Complex Registration Process: The registration process for a Producer Company can be intricate, often necessitating the assistance of a consultant to navigate the complexities.
  3. Time-Consuming Registration: Registering a Producer Company can be a time-consuming endeavor, which may require patience during the incorporation process.
  4. Restricted Share Transfer: Members of a Producer Company face limitations on the transfer of their shares. These shares cannot be freely traded or transferred like those of publicly traded companies.
  5. Recruitment of Professional CEOs: Attracting a professional CEO at an affordable cost can be challenging, particularly for smaller Producer Companies.
  6. Adherence to Statutory Provisions: Producer Companies must adhere to the statutory provisions of the Indian Companies Act and comply with its mandatory requirements, which may be complex and challenging for individuals without professional expertise.

Despite these limitations, many entities find the advantages of forming a Producer Company outweigh the challenges, especially when it comes to collective agricultural and rural development initiatives.