Producer Company

What is a Producer Company

A producer company is a legally recognized body of farmers/ agriculturists. It aims to improve the standard of their living and ensure a good status of their available support, incomes and profitability. Under the Companies Act 1956, 10 or more individuals, 2 or more institutions, or a combination of both (10 individuals and 2 institutions) can form a Producer Company. The business objective must come from the following list:

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

of the primary produce of the Members or import of goods or services for their benefit.

In addition, the main objective of the producer company is to facilitate the formation of co-operative business as companies. This objective also makes it possible to convert existing co-operative business into companies.

Objects of a Producer Company (Section 581B)

The objects given under section 581B are as follows:

“The objects of the Producer Company shall relate to all or any of the following matters, namely: (as given in the law)

  1. 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.
  2. Processing including preserving, drying, distilling, brewing, vinting, canning, and packaging of the produce of its Members
  3. Manufacture, sale or supply of machinery, equipment or consumables mainly to its Members.
  4. Providing education on the mutual assistance principles, to its Members and others.
  5. Rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its Members.
  6. Generation, transmission, and distribution of power, revitalization of land and water resources, their use, conservation and communication relatable to primary produce.
  7. Insurance of producers or their primary produce.
  8. Promoting techniques of mutuality and mutual assistance.
  9. Welfare measures or facilities for the benefit of Members as may be decided by the Board.
  10. 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.
  11. 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.”

Authorized activities of Producer companies

The Producer Company must deal with the produce of its members and may carry on any of the following activities:

  • Processing (processing also includes, preserving, brewing, vinting,  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, revitalisation 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 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 (ancillary or incidental to the main objectives of the producer company) in order to promote the mutual assistance amongst the producer members and the lines of principles of mutuality.

Note: the Companies Act 1956 defines primary produce as a 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, produce of hand-loom, handicraft and other cottage industries.

Pre-Incorporation Checklist

  • Any 10 or more individual producers can join together to form a producer company. There is no upper limit on the number of members.
  • Or, any 2 or more producer institutions can form a producer company.
  • A producer company requires a minimum capital of Rs. 500,000 to incorporate.
  • There should be minimum 5 directors (maximum of 15) in a producer company.
  • A producer company can never convert into a public company; however, it can convert into a multi-state co-operative society.

Registration Procedure

The process of registering a Producer Company is similar to that of a Private Limited Company. The proposed first Directors of the company must first obtain a Digital Signature (DSC) and Director Identification Number (DIN). Once the Directors obtain the Digital Signature (DSC) and Director Identification Number (DIN), they must file an application for name reservation with the relevant Registrar of Companies (ROC). There is a requirement under the Act that the name of a producer company must end with the words “Producer Limited Company”. Once the Registrar of Companies (ROC) approves the suggested name, the applicant must file an application for incorporation in the prescribed format. Once the Registrar is satisfied with the application and the required documents filed for incorporation of the Producer Company, the Registrar will approve the application and issue a Certificate of Incorporation.

Procedure and Documentation required to incorporate a Producer Company

  1. The first step is to obtain a Digital Signature Certificate (DSC) by all the directors. Documents required to obtain a DSC are:
    • PAN Card of the Director
    • Aadhaar Card of the Director
    • Photo
    • Email Id
    • Contact Number
  2. After obtaining the DSC, the next step is to obtain the Director Identification Number (DIN) by filing form DIR – 3 along with a self-attested Identity proof, address proof, and a photo
  3. Next, the applicant must finalize the name of the producer company. For that, the applicant must file Form INC – 1 with the Registrar of Companies (ROC), giving 6 names in the order of preference along with the significance of the names. The name shall have the words PRODUCER COMPANY at the end

Documentation and Final Filing Steps

  1. After the ROC approves the name, the applicant must prepare the following documents:
    • The applicant must draft the Memorandum of Association, incorporating all the objects that the company intends to follow
    • The applicant must draft the Articles of Association, containing all the by-laws of the company
    • A professional must draft a declaration in the format of form INC – 8
    • All subscribers of the proposed company must sign an affidavit declaring their legal competency to act as subscribers
    • The applicant must obtain a utility bill and a NOC from the owner of the address used as the registered office of the company. If the applicant does not own the address, they must attach a lease agreement to the form
    • The directors will give their consent to act in the Form DIR – 2 and details in DIR – 8
  2. The applicant must attach all the drafted documents to Form INC – 7, INC – 22 and DIR – 12 and upload them to the ROC website.
    On proper verification, the ROC will issue a Certificate of Incorporation and the company can start its business operations.

As a result, this form of establishment promotes the primary producer who is in a low-income group to optimize their income with collective bargaining and by selling the products directly to consumers.

Benefits for Producer Companies

A Producer Company enjoys the following benefits:-

  • The members of the producer company initially will receive the value for the produce pooled and supplied as determined by the directors. The company will give out this amount later in the form of cash/ kind/ equity shares.
  • Additionally, members of the producer company will receive bonus shares in the same proportion as the shares they hold.
  • Finally, the company may give the surplus (after providing for payment of limited return and reserves) to members as a patronage bonus*.

*Patronage bonus signifies a distribution of the surplus income to the members of the producer company in proportion to their respective patronage. Patronage, on contrary, is the participation by members in their business activities by using the services offered by producer company.

Loans and Investments

As mentioned above the Producer Company consist of individuals who are primary producers, and thus, are in need of financial support from time to time. Hence, the Companies Act 1956 includes a special provision for giving loans to producer members. For example, a Producer Company can provide financial assistance to its members through:-