PRODUCER COMPANY – AN OVERVIEW
AUTHOR "CS CHARU AGGARWAL"
AUTHOR "CS CHARU AGGARWAL"
Producer Company pursuant to Section 465 (1) of the Companies Act 2013 & Section 581A to 581ZL of Companies Act 1956
1. What is
Producer Company? Why should we go for Producer Company?
2. What are the
benefits including tax benefits to the member of such company?
3. Is there any
kind of financial support provided by Government to Producer Company?
4. What are the
formalities and procedure to incorporate such company?
5. Whether it
is required to maintain statutory registers in case of Producer Company also?
There are so
many queries of clients which our professionals need to answer. We tried to
answer these questions through this article.
Applicable
Law:
According to
Section 465 of the companies Act 2013, the provisions of Part IX of the Companies
Act 1956 will remain applicable to Producer Company. Part IX of the Companies
Act 1956 contains Section 581A to Section 581ZL which will remain enforceable
as if the Companies Act 1956 has never been repealed.
Who is Producer?
As defined
under Clause (K) of Section 581A of the Companies Act 1956 "Producer"
means any person engaged in any activity connected with or relatable to any Primary
Produce.
Section
Clause (j) of Section 581A defines Primary Produce as under:
(i) produce of
farmers, arising from agriculture (including animal husbandry, horticulture,
floriculture, pisciculture, viticulture, forestry, forest products,
re-vegetation, bee raising and farming plantation products), or from any other
primary activity or service which promotes the interest of the farmers or
consumers ; or
(ii) produce of
persons engaged in handloom, handicraft and other cottage industries ;
(iii) any product
resulting from any of the above activities, including by-products of such products ;
(iv)any product
resulting from an ancillary activity that would assist or promote any of the
aforesaid activities or anything ancillary thereto ;
(v) any activity
which is intended to increase the production of anything referred to in
sub-clauses (i) to (iv) or improve the quality thereof
Producer Company as defined under Clause (L)
of Section 581A (Definitions) of the
Companies Act 1956:
Producer Company means a body corporate having objects or
activities specified in section 581B and registered as Producer Company under
this Act.
Why Producer Company:
There are several benefits available to farmers if they
incorporate Producer Company. One of the major benefits is farmers can receive
the value that the ultimate consumer pays for the produce. They can ensure
better income through their producer company as it helps the producers to
connect directly with the ultimate consumers and retailers also.
Small producers do not have the volume individually (both
inputs and produce) to get the benefit of economies of scale. Besides, in
agricultural marketing, there is a long chain of intermediaries who very often
work non-transparently leading to the situation where the producer receives
only a small part of the value that the ultimate consumer pays. Through
aggregation, the primary producers can avail the benefit of economies of scale.
They will also have better bargaining power vis-à-vis the bulk buyers of produce
and bulk suppliers of inputs.
Benefits under Various Laws:
Under Companies Act- Section 581E
(1) Every Member shall initially
receive only such value for the produce or products pooled and supplied as the
Board of Producer Company may determine.
(2) Every Member shall, on the
share capital contributed, receive only a limited return;
Provided that every such
Member may be allotted bonus shares in accordance with the provisions contained
in section 581ZJ.
(3) The surplus and reserves
referred to in section 581ZI, may be disbursed as patronage bonus, amongst the
Members, in proportion to their participation in the business of the Producer
Company, either in cash or by way of allotment of equity shares, or both, as
may be decided by the Members at the general meeting.
Under Income- Tax Act 1961- Section 10(1)
As per provisions of this section, Agricultural income is exempted from the purview of Income tax subject to certain conditions.
Financial Support to Producer Company:
NABARD, SFAC, Government Departments, Corporate and Domestic & International Aid Agencies provide financial and/or technical support to the Producer Organization Promoting Institution (POPI) for promotion and hand-holding of the Producer Company. Each agency has its own criteria for selecting the project/promoting institution to support.
POPI means an NGO, a bank branch, a Government Department, a Cooperative
Society or any Association or Federation who are involved in promoting and
financing the producer company.
NABARD plays vital role in supporting Producer
Company
NABARD provides technical, managerial
and financial support for hand-holding, capacity building, access market and
market intervention efforts for their produce. Some of these activities are as
below:
a. Credit and/or grant
support for setting up of marketing infrastructure facilities for sale of
produce.
b. Support for
marketing through rural haat and rural mart which had already been established
through NABARD support.
c. NABARD may
facilitate tie-ups with buyers for Producers Organization's produce.
Types of Share Capital
The share capital of a Producer Company
shall consist of equity shares only as provided under section 581ZB.
Requirement for Incorporation:
1. Any 10 or more
Individuals, each of them must be producers
OR 2 or more Producer Institutions
OR a combination of any 10 or more
individuals and Producer Institutions desirous of forming Producer Company as
provided under section 581C (1).
2. Atleast 5
Directors and not more than 15 Director as provided under section 581O.
3. Obtain DSC (Class
II) and DIN for all 5 Directors if they are not having these and PAN of all
subscribers.
Further, following procedure is to be followed for incorporating the
Producer Company:
Form INC-1 for Name Approval:
First of all, apply for Name approval.
1. The name must be
desirable and shall not contravene any provision of Section 3 of the Emblems
and Names (Prevention and Improper Use) Act, 1950 (12 of 1950).
2. It should be in
accordance to the provisions as provided under Section 4 (2) & 4 (4) read
with rule 8 & 9 of the Companies (Incorporation) Rules 2014.
3. It must end with
Suffix “Producer Company Limited” as provided under Section 581F.
4. INC-1 can be filed
with DSC of any one Director.
INC-1 Attachments
1. List of Remaining subscribers
2. Main Object of the
Producer Company separately signed by Directors.
Following forms are required to be filed with ROC
once the name will be approved:
1. DIR-12
2. INC-22
3. INC-7
Note: For Incorporation of producer company SPICE form will not be
filed as the number of subscribers is more than 7 and in such case INC-7 is to
be filed.
Documents required to be attached with above forms:
DIR-12 for 5 Directors:
1. DIR- 2 (Consent of
directors)
2. DIR-8 (Intimation
by Director)
3. Letter of
appointment as First Director by Board
4. MBP-1 (Notice of
interest by director)
INC-22 for Registering the address of the Company:
1. NOC by owner in
case rented premises
2. Utility Bill
(Telephone Bill/ Water/ Electricity bill)
3. Rent Deed/Lease
Deed
INC-7:
1. Affidavit of all
10 subscribers on stamp paper of Rs. 10 each.
2. INC-09 of all 10
subscribers
3. INC-8- Declaration
by Company Secretary/ Chartered Accountant/ Cost Accountant in practice
4. INC-10 of all
subscribers
5. Memorandum of
Association and Articles of Association to be signed by all subscribers and one
witness.
Reimbursement of Incorporation Expenses
subject to Approval of 1st General Meeting:
The expenses
incurred during promotion and incorporation of Producer Company which include
registration, legal fees, printing of a memorandum and articles and the payment
thereof shall be subject to the approval at its first general meeting of
the Members as provided under section 581C (4).
Frequency of Board Meetings
As provided under section 581Vof the Companies Act 1956, a
meeting of the Board shall be held not less than once in every three months and
at least four such meetings shall be held in every year.
Annual General Meeting:
1. 1st
AGM is to be help within 90 Days from the date of its incorporation and
subsequent meetings are required to be held in each year. The gap between two
AGM must not be more than 15 months as provided under section 581ZA.
2. The
directors on the Board of the company other than First Directors shall be
elected and appointed in the AGM by its members.
Requirement
of Company Secretary
Pursuant to Section 581X (1) of the Companies Act 1956, every
Producer Company having an average annual turnover exceeding Five Crore rupees
in each of three consecutive financial years shall have a whole-time secretary.
Such Secretary must posses the membership of Institute of Company Secretaries
of India (ICSI).
Requirement
of Full Time Chief Executive
Pursuant to Section 581W, Board of every Producer Company is
required to appoint full time Chief Executive other than Members and he shall
be Ex-officio Director of the Board and shall not retire by rotation.
Statutory
Registers:
Requirement
to maintain Statutory registers will be applicable to Producer Company as if
its a private company. So the company has to maintain all statutory registers.
Conclusion:
1. The members
must be primary producers. Also, Producer Company shall perform only such
functions as mentioned in the clause of Main Object in MOA.
2. The name of
the producer company must end with “Producer Company Limited” as provided under
section 581F.
3. The Main
Object is to be filed and signed separately also in form INC-1.
4.
No subscriber
shall take less than one share as provided under section 581F (h).
5.
Liability of
members is limited.
6.
Also don’t get confuse with SPICE form because in case of more than 7
subscribers INC-7 will be filed.
7.
Once the
Producer Company incorporated, it shall become a body corporate as if it is a
private limited company.
8.
There is no restriction
on maximum number of members according to Section 581C (5).
9.
Affidavits
are to be made on stamp paper of Rs. 10 each.
10.
NABARD and
other government entities are always there to help and support the producer
companies so that the small producers may get better income.
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