Producer Companies

Introduction

A producer company can be defined as a legally recognized body of farmers/agriculturists with the aim to improve the standard of their living and ensure a good status of their available support, incomes and profitability. Under Companies Act 1956, a Producer Company can be formed by 10 individuals or 2 institutions or by a combination of both having their business objective stated as under.

Objects of Producer Company

In terms of Section 581B (1) of the Companies Act, 1956, the objects of a producer company registered under this Act may be all or any of the following matters:

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.
2. processing including preserving, drying, distilling, brewing, vinting, canning and packaging of the produce of its members.
3. manufacturing, 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, revitalisation of land and water resources, their use, conservation and communications 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 the 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) above 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) above, which include extending of credit facilities or any other financial services to its members.

Further, under Section 581B(2) it has also been clarified that every producer company shall deal primarily with the produce of its active members for carrying out any of its objects specified above.

Some criterias of a Producer Company

1. The name of the company should end with “Producer Company Limited”.
2. Only persons engaged in an activity connected with, or related to, primary produce can participate in the ownership.
3. The members have necessarily to be primary producers.
4. Termed as “Companies with Limited Liability” and the liability of the members will be limited to the amount, if any, unpaid on the shares.
5. 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
6. However, it shall comply with the specific provisions of part IXA.
7. The limit of maximum number of members is not applicable to these Companies.

Minimum and Maximum requirements of a Producer Company

1. Any 10 or more individuals, each of them being a producer or,

Any 2 or more Producer institutions, or

A combination of 10 or more individuals and producer institutions

2. Every Producer company shall have at least 5 and maximum of 15 directors having tenure of at least 1 year to a maximum of 5 years.
3. A minimum capital of Rs. 5 lakh is required to incorporate a producer company.
4. It can never be converted into a public company however it can be converted into a multi-state co-operative society.

Documents/Details Required for Incorporation of a Producer Company

1. DIR -2 – Declaration from first Directors along with Copy of proof of identity and residential address.
2. Passport size photo of the directors.
3. NOC from the owner of the property.
4. Proof of office address.
5. Copy of utility bills (not older than 3 months).
6. In case directors not having DIN, their identity proof and address proof.
7. PAN & TAN and any other document if required.
8. Preparation of MOA & AOA in INC-33 and INC-34.

Steps for incorporation

1. Applicants have to signup/login into their account on MCA Website
2. Click on New Application and a window will open
3. Choose the “Type of company” as Producer company, “Class of company” as Producer company limited, “Category”, “Sub-category”, “Main division”, “Description of main division” and “Name” as required and desired

Submit the application.

4. If the registrar if is satisfied that all the requirements of the Act have been complied with he shall, within 30 days of the receipt of documents required for registration, issue a certificate of incorporation.

Share Capital

1. Share capital of a Producer Company shall consist of equity shares only.
2. Members’ equity cannot be publicly traded but only transferred
3. Voting
4. Only of individuals, then voting rights shall be based on a single vote for every member.
5. Only of producer institutions, then voting rights on the basis of their participation.
6. Combination of both the individuals and producer institutions then voting rights shall be based on a single vote for every member.

Annual General Meeting

1. First AGM shall be conducted within 90 days from the date of incorporation.
2. The Registrar may permit extension of the time for holding Annual General Meeting (not being the first annual general meeting) by a period not exceeding 3 months.
3. The Producer Company shall in each year hold an Annual General Meeting and not more than 15 months shall elapse between the date of one Annual General Meeting to the next.
4. The AGM shall be called by issuing at least 14 days notice.
5. The proceedings of every AGM along with Directors’ Report, the audited Balance Sheet and Profit & Loss Account shall be filed with the Registrar within 60 days of AGM.

Members’ Benefits

1. Members will initially receive only such value for the produce or products pooled and supplied as the directors may determine.
2. The withheld amount may be disbursed later either in cash or in kind or by allotment of equity shares.
3. Members will be eligible to receive bonus shares.
4. An interesting provision is for the distribution of patronage bonus(akin to dividend) after the annual accounts is approved — patronage bonus means payment out of surplus income to members in proportion to their respective patronage (not shareholding).

Audit

1. 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.
2. 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.

Alteration of Memorandum of association and Articles of Association

By passing Special Resolution Memorandum or Articles of the company can be altered, but alteration of MOA or AOA shall not be inconsistent with Section 581B.

In case of alteration of Articles- It has to be proposed by not less than 2/3rd of the elected directors or by not less than 1/3rd of the Members and adopted by special resolution.

Copy of the altered MOA or AOA alongwith the copy of the special resolution has to be filed with the Registrar within 30 days of adoption.

Winding Up of a Producer Company or Closure of a Producer Company

The Registrar shall strike the name of the Producer Company if the company fails to commence its business within one year from the date of registration or ceases it transactions after giving a notice to the company. Any Member of the Producer Company is aggrieved against such order