All about Producer Company

In the Companies Act 2013, a Producer Company is defined as a company that is formed and registered under the Companies Act, with the objective of production, harvesting, procurement, grading, pooling, handling, marketing, selling, and export of primary produce of its members or import of goods or services for their benefit.

The primary produce includes the products of farmers or agriculture, horticulture, animal husbandry, fisheries, dairy, beekeeping, or any other primary produce that is specified by the central government.

A Producer Company is formed by a minimum of 10 individuals or two or more institutions, with at least 5 directors, and it is a separate legal entity. Members of the Producer Company have limited liability, and the liability of the company is limited to the extent of its assets.

The Producer Company is managed by the board of directors, which is elected by the members of the company. The board of directors has the power to make decisions and take actions in the best interest of the company and its members.

The Companies Act 2013 provides for the registration, incorporation, management, and winding up of Producer Companies. It also provides for the rules and regulations that govern the functioning of the Producer Companies.

Some more details about Producer Companies under the Companies Act 2013

1. Objectives: The primary objective of a Producer Company is to benefit its members by promoting their interests in terms of production, marketing, selling, and export of their primary produce. The company can import goods or services that are required by its members for their benefit.

2. Membership: A Producer Company can have only active members who are engaged in the production of primary produce, and at least 2/3rd of the total number of members should be engaged in primary production activities. The maximum number of members in a Producer Company can be 15,000, and each member has one vote irrespective of their shareholding.

3. Governance: A Producer Company is managed by a board of directors, which is elected by the members of the company. The board of directors should have at least 5 directors, and they should be elected in a general meeting of the members. The directors are elected for a term of five years, and they can be re-elected for a maximum of two terms.

4. Liability: Members of a Producer Company have limited liability, and their liability is limited to the extent of their shareholding in the company. This means that in case of any losses or debts incurred by the company, the members are not personally liable beyond their investment in the company.

5. Audit and Reporting: A Producer Company is required to maintain proper books of accounts and get them audited annually. The audited financial statements and annual reports of the company should be presented to the members in the annual general meeting. The company must also file its financial statements and annual report with the Registrar of Companies.

6. Conversion: An existing cooperative society that is engaged in the production of primary production can be converted into a Producer Company under the Companies Act 2013.

7. Taxation: A Producer Company is taxed as a regular company under the Income Tax Act, and it is eligible for various tax benefits that are available to companies engaged in agricultural activities.

8. Share Capital: The minimum authorized and paid-up share capital for a Producer Company is Rs. 5 lacks and Rs. 1 lakh, respectively. The company can raise additional capital by issuing shares to its members, subject to the provisions of the Companies Act.

9. Incorporation: A Producer Company can be incorporated as a private limited or public limited company, and it must include the words 'Producer Company' in its name. The registration process is similar to that of any other company, and the registration fee is lower than that for a regular company.

10. Objects Clause: The objects clause of a Producer Company must state that the company is formed for the production, harvesting, procurement, grading, pooling, handling, marketing, selling, and export of primary produce of its members or import of goods or services for their benefit.

11. Governance Structure: A Producer Company is governed by the board of directors, which is elected by the members of the company. The board of directors is responsible for the management of the company and has the power to make decisions in the best interest of the company and its members.

12. Dividend: A Producer Company can distribute dividends to its members in proportion to their shareholding in the company. However, the dividend rate should not exceed 20% of the profit earned by the company during the financial year.

13. Prohibition on Speculation: A Producer Company is prohibited from engaging in any speculative activities or entering into contracts that are not related to its primary production activities.
14. Conversion into a Regular Company: A Producer Company can be converted into a regular company if it no longer satisfies the conditions for being a Producer Company or if its members decide to convert it into a regular company.

15. Winding Up: A Producer Company can be wound up voluntarily or by an order of the National Company Law Tribunal (NCLT) if it is unable to pay its debts or if the members decide to wind up the company. The winding-up process is similar to that of any other company.

16. Restrictions on Voting Rights: Members of a Producer Company cannot exercise their voting rights by proxy, and they cannot vote on any resolution that is not related to the primary production activities of the company.

17. Board Meetings: A Producer Company must hold at least four board meetings in a year, with a maximum gap of 120 days between two consecutive meetings. The quorum for a board meeting is one-third of the total number of directors or two directors, whichever is higher.

18. Statutory Reserve: A Producer Company is required to set aside 10% of its net profit as a statutory reserve until the reserve equals the paid-up share capital of the company. The statutory account can be used only for certain specified purposes, such as making dividend payments or writing off losses.

19. Professional Management: A Producer Company can appoint professional managers to manage its affairs, subject to the approval of the board of directors and the members. Professional managers can be paid a salary or a commission, as per the terms of their appointment.

20. Registration with NABARD: A Producer Company can register with the National Bank for Agriculture and Rural Development (NABARD) to avail of various financial and technical assistance programs for the promotion of agricultural activities.

21. Branches: A Producer Company can open branches in different locations to carry out its primary production activities. However, the branches should be managed by the central office of the company and should comply with the provisions of the Companies Act.
22. Annual Return: A Producer Company is required to file an annual return with the Registrar of Companies, which contains details of its members, directors, share capital, and financial performance during the year.

In conclusion, Producer Companies provide a legal structure for farmers to collaborate and engage in collective production, marketing, and selling of their primary produce. The Companies Act 2013 provides for the registration, governance, and regulation of Producer Companies, and they are subject to similar compliance requirements as regular companies. These provisions aim to promote agricultural activities and rural development in India.

The author is a Company Secretary and can be reached at sbkkhan192@gmail.com