Producer Company

• About Producer Company
• Background
• Meaning of Producer Company 
• Characteristics of Producer Company 
• Incorporation of a Producer Company 
• Various features of a producer company 
• Salient Provisions of Companies Act relating to Producer Companies 
• Difference between Producer Company and conventional producer’s cooperative

Background

Reference Section 465(1) of the Companies Act, 2013 ,the provisions of Part IXA of the companies Act 1956  shall be applicable mutatis mutandis  to a Producer Company in a manner as if the companies Act 1956 has not been repealed until a special act is enacted for Producer Companies. The concept of Producer Companies was introduced in 2002 by incorporating a new Part IXA (section 581A to 581ZT) into the Companies Act, 1956 (the Act) based on the recommendations of an expert committee led by an economist, Y.K.Alagh.
Meaning of Producer Company
A producer company is basically a body corporate registered as Producer Company under Companies Act, 1956 and shall carry on or relate to any of following activities classified broadly:-

•  Production, harvesting, processing, procurement, grading, pooling, handling, marketing, selling

• Export of *primary produce of the Members or import of goods or services for their benefit

•  Rendering technical services, consultancy services, training, education, research and development

•  And all other activities for the promotion of the interests of its Members

• Generation, transmission and distribution of power, revitalization of land and water resources, their

•  Use, conservation and communications relatable to primary produce

• Promoting mutual assistance, welfare measures, financial services, insurance of producers or their

• Primary produce

*Primary produce has been defined as a produce of farmers arising from agriculture including animal husbandry, horticulture, floriculture, pisciculture, viticulture, forestry, forest products, re-vegetation, bee raising and farming plantation products: produce of persons engaged in hand-loom, handicraft and other cottage industries: by – products of such products; and products arising out of ancillary industries.
Characteristics of Producer Company
The registered producer company should be treated as a private limited company with the significant difference that a minimum of two persons cannot get them registered.

•     These companies are with limited liabilities and limited only by share capital.

•     The liability of the members is limited to the unpaid amount of the shares held by them.

•     As per the new circular No. 27/1/87 dated 13/3/1989 minimum paid-up authorized capital is of Rs. 5 lakh.

•     The minimum number of members can exceed 10 and each of them must being a producer.

•     It shall never become a public (or deemed public) limited company.

•     Member’s equity cannot be publicly traded but be only transferred.

As such, ‘producer companies would not be vulnerable to takeover by other companies or by Multinational Companies (MNCs).”
Incorporation of a Producer company
Any of the following combination of producers can incorporate a producer company:
1    Ten or more producers (individuals) or
2    Two or more producer institutions or
3    Combination of the above two (10+2).
Registration
i    In a Producer Company, only persons engaged in an activity connected with, or related to, primary
ii    Produce can participate in the ownership. The members have necessarily to be primary producers.
iii    These companies shall be termed as ‘Companies with Limited Liability’ and the liability of the
iv    Members will be limited to the amount, if any, unpaid on the shares.
v    The name of the company shall end with the words ‘Producer Company Limited’
vi    On registration, the producer company shall become as if it is a private limited company for the
vii    Purpose of application of law and administration of the company (however it shall comply with the specific provisions of part IXA).
viii    The provision relating to a minimum paid-up capital of Rs. 1 lakh will not apply.
ix    The maximum number of 200 members is not applicable to these companies.

Share Capital and Voting Rights

The share capital of a Producer Company shall consist of equity shares only.
Member’s equity cannot be publicly traded but only transferred.
Voting when membership is:
• Only of individuals then voting rights shall be based on a single vote for every member.
• Only of producer institutions then voting rights on the basis of their participation.
•  Combination of individuals and producer institutions then voting rights shall be based on a single vote for every member
Various features of a producer company

Objects

The objects of producer companies shall include one or more of the eleven items specified in the Act, the more important of these being:
The objects of the Producer Company shall relate to all or any of the following matters, namely : –

•  production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce 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 ;

•  processing including preserving, drying, distilling, brewing, vinting, canning and packaging of produce of its Members ;

•  manufacture, sale or supply of machinery, equipment or consumables mainly to its Members ;

•  providing education on the mutual assistance principles to its Members and others ; Page 3 of 13

•   rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its Members ;

•  generation, transmission and distribution of power, revitalisation of land and water resources, their use, conservation and communications relatable to primary produce ;

•  insurance of producers or their primary produce ;

•  promoting techniques of mutuality and mutual assistance ;

•  welfare measures or facilities for the benefit of Members as may be decided by the Board ;

•  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 ;

•  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.

Management  
Every producer company should have at least five and not more than 15 directors. A full time chief executive is to be appointed by the board. He shall be an ex-officio director and will not be liable to retire by rotation and shall be entrusted with substantial powers of management as the board may determine.
Member’s Benefit   
Members will initially receive only such value for the produce or products pooled and supplied as the directors may determine. The withheld amount may be disbursed later either in cash or in kind or by allotment of equity shares. Members will be eligible to receive bonus shares.
There is a provision for the distribution of patronage bonus (akin to dividend) after the annual accounts are approved. Patronage, in turn, is defined as the use of services offered by producer companies to their members by participation in their business activities.
LOAN, ETC., TO MEMBERS- The Board may, subject to the provisions made in articles, provide financial assistance to the Members of the Producer Company by way of – (a) credit facility, to any Member, in connection with the business of the Producer Company, for a period not exceeding six months ; Page 13 of 13 (b) loans and advances, against security specified in articles to any Member, repayable within a period exceeding three months but not exceeding seven years from the date of disbursement of such loan or advances : Provided that any loan or advance to any director or his relative shall be granted only after the approval by the Members in general meeting.
Reserves
Every producer company has to maintain a general reserve in every financial year and in case there are not sufficient funds in any year for such transfer, the shortfall has to be made up by member’s contribution in proportion to their patronage in the business.
Tax Benefits  
Indian economy is basically an agrarian economy. More than two-thirds of the Indian population depends upon agriculture for their livelihood.
The Indian Income Tax Act, 1961(‘the IT Act’) specifically exempts tax on agricultural income under section 10(1). However, the exemption for such agricultural income shall sometimes vary depending upon the kind of agricultural activity carried on.
It is to be noted that though the IT Act does not per-se give any special benefits or exemptions to Producer Companies as such, but depending upon the kind of agricultural activity it carries on, certain tax benefits can be availed.
For instance, if green tea leaves are grown and sold directly without any further processing, the income derived from such an activity is considered as agricultural income under the IT Act and such income is 100 % tax free, but if the green tea leaves are further processed and tea is manufactured only 60% of the income derived from such an activity is considered as agricultural income and the tax exemption can be availed only on the said 60% of such income.
Thus, it is clear that the tax exemption to a producer company depends upon the activity it carries on.
Dispute Resolution
Dispute relating to producers companies are to be settled by conciliation or arbitration under the Arbitration and Conciliation Act, 1996 as if the parties to the dispute have consented in writing to such procedure.

Difference between Producer Company and conventional producer’s cooperative

Table 2 below gives a comparative picture of the main features differentiating a producer company from a conventional producer’s cooperative
Features	Producer Cooperative	Producer Company
Registration	Cooperative Societies Act	Companies Act
Membership	Open only to individuals and cooperatives	Only those who participate in the activity
Relationship with other corporate/ business houses /NGOs	Transaction based	Producers and corporate entity can together float a producer company
Shares	Not tradable	Not tradable but transferable
Voting Rights	One person, one vote, but Government and RCS holds veto powers	One person one vote. Those not having transactions with company can’t vote
Reserves	Significant	Mandatory to create every year
Role of Registering authority	Overbearing	Minimal
Administrative control	Creation / Modification of Charges	None
Borrowing Power	Restricted	More freedom and alternatives
Dispute Settlement	Through Cooperative mechanism	By Arbitration

Minimum Requirement to be fulfilled to Form a Private Limited Company

• Ten promoters (Shareholders)
• Five directors
• Authorized capital of Rs.5,00,000
• DIN (Director Identification Number) for all the directors
• DSC (Digital Signature Certificate) for all the directors

Know About Digital Signature

What is a Digital Signature Certificate (DSC)?
The Information Technology Act, 2000 provides for use of Digital Signatures on the documents submitted in electronic form in order to ensure the security and authenticity of the documents filed electronically. This is the only secure and authentic way that a document can be submitted electronically. As such, all filings done by the companies under MCA21 e-Governance program are required to be filed with the use of Digital Signatures by the person authorized to sign the documents.
Pay Attention
You can use only the valid Digital Signatures issued to you. However it is not lawful to use digital signature of someone else by way of impersonation.
Certification Agencies
Office of the Controller of Certification Agencies (CCA) under the provisions of IT Act, 2000 appoints Certification Agencies. A total of seven Certification Agencies have been authorized by the CCA to issue the Digital Signature Certificates (DSCs). The details of these Certification Agencies are available on the portal of the Ministry of Corporate affairs.
Class of DSC
The Ministry of Corporate Affairs has stipulated a Class-II or above category signing certificate for e-filings under MCA21. A person who already has the specified DSC for any other application can use the same for filings under MCA21 and is not required to obtain a fresh DSC.
Required documents for getting DSC:

• Specified Form filled as per given guidelines
• ID proof of the applicant (Copy of the PAN card should be attested by the Gazetted officer/Bank manager/Post master).
• Address proof (Passport/Aadhar card/Driving License/Voter Id/Latest Utility Bill like Electricity bill, Telephone bill, Water bill, Gas bill, etc, Property Tax receipt). This needs to be attested by a Gazetted officer/ Bank manager/ Post master.
• Passport size photo(3.5 cm X 2.5 cm)

Getting DIN

The concept of a Director Identification Number (DIN) has been introduced for the first time with the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. As such, all the existing and intending directors have to obtain DIN within the prescribed time-frame as notified.
DIN is a unique identification number allotted to an individual who is an existing director of the company or intends to be appointed as director of a company. DIN is an 8 digit number. For example: 02165789.This is allotted by Central Government (office of regional director), Ministry of Corporate Affairs. A private company must have at least 2 directors.
Required documents/information’s for Allotment of DIN

• Self attested* copy of the PAN Card
• Self attested* identity proof of the proposed directors (like Voter ID Card/ Valid Driving License/ Valid Passport/ Aadhar Card etc).
• Self attested* Address proof of the proposed directors (like Latest Bank Statement/ Telephone or Mobile Bill/ Electricity Bill etc).
• Passport size color & clear photograph (3.5 cm X 2.5 cm)
• An specified Affidavit by the individual (Declaration by the individual and self attested*)
• Educational Qualification
• Current Occupation
• Valid Email Id and Mobile Number

*Signature should be same as in PAN card.
Before you fill-in applications for DIN please remember following common causes of REJECTIONS

• Applicant’s name and father’s name mentioned in abbreviated form: The Name should be expanded even if the ID proof contains the name in abbreviated form.
• Mismatch in the applicant’s name and father’s name in DIN form with the ID (Identity) proof enclosed: Any mismatch in name, including spelling mistake, may lead to rejection of application. Minor spelling deviations in the father’s name may be accepted, if such deviations do not materially impact the name.
• Prefixes like Mr/ Ms/ Kumari/ Shri/ etc. used in the applicant’s name.
• Residence proof(s) like Bank Statements, Electricity Bill, Telephone Bill, Utility bills, etc, submitted are older than 2 months of submitting the application for verification such documents are in the name of some other person, for example father or spouse.
• The supporting documents are not duly attested by the proposed directors.
• Passport/Driving License/Identity proofs/etc attached is expired: Only such documents which are currently valid should be attached.
• The signature is not the same with the signature in the PAN card.

Name Search and application for Name Availability

Next step in the formation of a company is the approval of the name by the Registrar of Companies (ROC) in the State/Union Territory in which the company will maintain its Registered Office. This approval is provided subject to certain conditions: for instance,

• There should not be an existing company by the same name.
• The first word contain a noun and the second word must relate to the main object of the proposed company
• The last words in the name are required to be ‘Producer Company  Ltd.’
• The application should mention at least two suitable names to maximum 6 names of the proposed company, in order of preference

Once company name is approved, it is valid for a period of sixty days from the date of application, within thath time Memorandum of Association (MOA) and Articles of Association (AOA) together with miscellaneous documents should be filed. If one is unable to do so, an application may be made for renewal of name by paying additional fees.
Information required for seeking Name Approval

• Proposed name of the company and alternative names (2 to 6 names)
• Names of the proposed promoter(minimum 10)/director (minimum 5)
• Authorized share capital (minimum INR 500000)
• Main objects of the company in brief (200 alphabetic words)
• Address proof for registered office of the proposed company
• Address for the nearest police station of proposed registered address of the company.
• NOC, if the promoter is carrying on any Partnership firm, sole proprietary or unregistered entity in the name as applied.
• NOC from the person if the proposed name(s) contain(s) name of any person other than promoter(s) or their close blood relatives.
• If the proposed name(s) include(s) the name of relatives then the proof of relationship is also required.

Drafting of Bye Laws (MOA & AOA)

The Memorandum of Association (MOA) is a document that sets out the constitution of the company. It contains, amongst others, the main objectives, incidental or ancillary objectives for the attainment of the main objectives and the scope of activity of the company and also describes the relationship of the company with the outside world.
The Articles of Association (AOA) contain the rules and regulations of the company for the management of its internal affairs. While the Memorandum specifies the objectives and purposes for which the Company has been formed, the Articles lay down the rules and regulations for achieving those objectives and purposes. It also states the authorized share capital of the proposed company and the names of its first/ permanent directors.

Incorporation Process

After getting the name approval, the MOA/ AOA have to be drafted.
Get the subscription sheet of MOA and AOA signed by all the subscriber/promoter in his own handwriting with the following details as per the given order:

• The name of the subscriber
• Father’s name of the subscriber
• Address of the Subscriber
•  Occupation of the subscriber

 The subscription sheets of MOA must be mentioned the number of shares subscribed by the promoters in numbers as well as words and the passport size photograph of the subscribers must be affixed. The subscription sheets of MOA/AOA must be witnessed by at least one person.
Form INC 7
The following information/documents required in INC 7:

• Finalized MOA/ AOA containing subscription sheets
• Affidavit for non acceptance of public deposit from all the promoters/ directors
• PAN card, address proof, identity proof of all the promoters
• INC 8,9 &10 in specified format
• DIR 2  consent of Director; duly digitally signed by promoter/ director
• Power of attorney ,duly stamped and executed by all the subscribers ,authorizing any one of them or any other person to follow up the matter  with the ROC

Form INC 22
This is a form to be filed by the company informing the ROC the address of registered office of the proposed company duly digitally signed by one of the director along with a professional.
The following information/documents required in Form INC 22:

• If property is owned by the proposed director, then;
  • Registered proof in the name of the director like latest Electricity Bill, Telephone bill, Gas bill
  • NOC from the proposed director to use the premises

 

• If the property is owned by other than proposed director, then;
  • Rent agreement between the land lord and proposed company through its proposed directors
  • Registered address proof in the name of the landlord like latest Electricity Bill, Telephone bill, Gas bill
  • NOC from the landlord to use the premises

• The name and address of the nearest police station of the premises where the company is going to be incorporated

Form DIR 12
This form states the fact of appointment of the proposed directors on the board of directors from the date of incorporation of the proposed company and that it is digitally signed by one of the proposed directors along with the professional.
The following information/documents required in Form DIR 12:

• Appointment Letter
• INC 9 and DIR 2 in specified format: Detail of appointment of board of directors digitally signed by one of the proposed directors along with the professional

After obtaining the details of Form INC7, INC22 and DIR12, these forms are uploaded on the MCA portal with the respective fees along with the stamp duty of the respective state.
After this, incorporation certificate having CIN (corporate identification number) like U 72900 RJ 2012 PTC 039206 will be obtained.
Form INC 21
This is a form used for obtaining approval for commencement of business from the ROC.
The following information/documents required in Form INC 21:

• Board Resolution to subscribe the share capital of the company
•  Proof of payment of the stamp duty in the state in which the company is registered
• INC 10 in specified format; duly digitally signed by promoter/ director.

The certificate of incorporation along with the approval of commencement of business will be required while opening the current bank account in company name.

Documents/Information Required During Process

 Following documents/ forms need to be submitted along with requisite fee which is based on the amount of authorized capital as under:

1.	Form INC 1	Availability of Name for a New Company.
2.	Form INC 7	Application or declaration for incorporation of a company along with MOA & AOA, PAN card, Identity proof, address proof and affidavit for non acceptance of deposit by all the promoters/directors.
3.	Form INC 22	This is a form to be filed by one of the directors of the company informing the ROC the address of registered office of the proposed company.
4.	Form DIR 2	This is a consent obtained from all the proposed directors of the proposed company to act as directors of the proposed company.
5.	Form DIR 12	This is a form stating the fact of appointment of the proposed directors on the board of directors from the date of incorporation of the proposed company and is signed by one of the proposed directors.
6.	Form INC 21	Declaration prior to the commencement of business.
7.	Form INC 10	Form for verification of signature of subscribers.
8.	Form INC 9	Declaration by the subscribers for not been convicted of any offence in connection with the promotion, formation or management of any company during the preceding five years.
9.	Form INC 8	Declaration by the professional engaged in the incorporation process.

 

DOCUMENTS / FORMS REQUIRED AFTER INCORPORATION

Form Name	Event for which form is required to submit	Due date of filing	Whether fixed rate of additional fee is required as per Table 1b
FORM INC22	Registered office Change Notice	Within 30 Days of event	Y
FORM DIR12	Changes In Director /Manager	Within 30 Days of event	Y
FORM SH7	Increase in Share Capital /Members	Within 30 days of event	Y
FORM MGT14	Registration of Resolution / Agreement	Within 30 days of event	Y
SCHEDULE V	Annual Return	Within 60 Days of AGM	Y
SCHEDULE VI	Balance Sheet and Profit & Loss Account	Within 30 Days of AGM	Y
FORM CHG1	Creation / Modification of Charges	Within 30 days of event	Y
FORM CHG4	Particulars for satisfaction of charge	Within 30 Days of event	N
FORM INC28	Notice of Court / CLB Order	NA
FORM PAS3	Return of Allotment	Within 30 days of event	Y
FORM INC27	Conversion of Public to Private application vice versa	Within 30 days of event	N
FORM CHG9	Particulars of Series of Debentures	Within 30 days from event	Y
FORM INC18	Application to Regional Director for conversion of section 8 company into any other kind of company	Within 30 days of event	Y
FORM INC20	Intimation to Registrar of revocation or surrender of license issued under section 8	Within 30 days of event
FORM INC23	Application to Regional director for approval to shift the registered office from one state to another state or from jurisdiction of one registrar to another within the state	Within 30 days of event	Y
FORM INC 24	Application for approval of Central Government for change of name	Within 30 days of event	Y
FORM INC-28	Notice of order of the Court or other authority	Within 30 days of event	Y
FORM PAS-3	Return of allotment
FORM SH-8	letter of offer
FORM SH-11	Return in respect of buy back of securities	Within 30 days of event	Y
FORM CHG-6	Notice of appointment or cessation of receiver or manager	Within 30 days of event	Y
FORM CHG-9	Application for registration of creation or modification of charge for debentures or rectification of particulars filed in respect of  creation or modification of charge for debentures	Within 30 days of event	Y
FORM MGT-6	Form of return to be filed with the Registrar	Within 30 days of event	Y
FORM MGT-14	Filing of Resolutions and agreements to the Registrar under section 117	Within 30 days of event	Y
FORM DIR-6	Intimation of change in particulars of Director to be given to the Central Government	Within 30 days of event	Y
FORM DIR-11	Notice of resignation of a director to the Registrar	Within 30 days of event	Y
FORM MR-1	Return of appointment of managing director or whole time director or manager	Within 30 days of event	Y
FORM MR-2	Form of application to the Central Government for approval of appointment or reappointment and remuneration or increase in remuneration or waiver for excess or over payment to managing director or whole time director or manager and omission or remuneration to directors	Within 30 days of event	Y
FORM URC-1	Application by a company for registration under section 366	Within 30 days of event	Y
FORM FC-1	Information to be filed by foreign company	Within 30 days of event	Y
FORM FC-2	Return of alteration in the documents filed for registration by foreign company	Within 30 days of event	Y
FORM FC-3	List of all principal places of business in India established by foreign company	Within 30 days of event	Y
FORM FC -4	Annual Return	Within 30 days of event	Y
FORM GNL-1	Form for filing an application with Registrar of Companies	Within 30 days of event	Y
FORM GNL-2	Form for submission of documents with Registrar of Companies	Within 30 days of event	Y
FORM GNL-3	Particulars of person(s) or director(s) or charged or specified for the purpose of section 2(60)	Within 30 days of event	Y
FORM RD-1	Form for filing application to Regional Director	Within 30 days of event	Y
FORM RD-2	Form for filing petitions to Central Government (Regional Director)	Within 30 days of event	Y
FORM CG-1	Form for filing application or documents with Central Government	Within 30 days of event	Y