A Guide to the In and Outs of a Producer Company in India

Introduction

The idea of a Producer Company was developed to let producers operate as a commercial body under the Ministry of Corporate Affairs in India. Any person involved in any activity related or connected to any primary produce (items that have been produced or grown, especially by farming) is referred to as a producer under the Companies Act. In this article, we will examine the in and outs of a Producer Company in India along with the Activities Authorized under Producer Company in India.

What is a Producer Company?

A Producer Company can be defined as a legally recognized body of farmers/ agriculturists to improve the standard of their living and ensure a good status of their available support, income and profit. Under the Companies Act 1956, a Producer Company can be formed by 10 individuals (or more) or 2 institutions (or more) or by a combination of both (10 individuals and 2 institutions) having their business objective as one of the following:

• Procurement of goods
• Producing goods
• Harvesting goods
• Grading goods
• Pooling goods
• Handling goods
• Marketing goods
• Selling goods
• Exporting goods

What are the activities authorized under Producer Company?

It is required for the Company to take any of the below-mentioned activities on behalf of its active members, either directly or through third parties.

• Processing of the goods produced that includes preserving, drying, distilling, brewing, vinting, canning, and packaging the goods so produced.
• Producing and providing materials, mainly to the company’s employees and contractors.
• Educating the members and the general public about the advantages of teamwork.
• Supporting its members by offering training, consultancy, and development services along with technical assistance.
• The development and transmission of power, the production and distribution of energy, as well as the revitalization of land and water resources.
• Getting an insurance for the principal or produced goods.
• Developing an atmosphere of mutual cooperation and support.
• Whatever the Board determines is necessary for the convenience and well-being of members.
• Promoting the concepts of reciprocity and mutual support among the members, whether they are connected to the above-mentioned activities.
• Lending provides its members with additional financial services for purchasing, processing and marketing.

Benefits of Registration of a Production Company

Primary producers or “Producer Institutions” are the only parties permitted to own or join a Producer Company, and the member equity of a Producer Company cannot be traded. Benefits of registration of a Producer Company include the following:

• The worth of the gathered and supplied production, as decided by the directors, shall initially be distributed to the Producer Company’s members. This sum will be distributed later in the form of cash, gifts, or equity shares.
• The production company’s members will be eligible to receive bonus shares in a ratio equal to the number of shares they currently own.
• The surplus may be distributed as a patronage bonus to the producing company’s members (after making provisions for the payment of limited returns and reserves).

Patronage bonuses refer to a distribution of the surplus income to the members of the production company according to their patronage. Contrarily, patronage refers to the involvement of members in the Producer Company’s operations by using its services.

The responsibilities under the law of Producer Companies

The Producer Company must deal with the products of its members and is allowed to perform the following under the law of Producer companies:

• The term “processing” refers to activities like preserving, brewing, vinting, dehydrating, and packing its members’ products.
• Supplying materials, machinery, and equipment to its producer members.
• Inform the Producer Company’s producers and others about the ideas of mutual support.
• All additional essential activities to promote the interests of the producer members, including rendering advisory services, technical services, training, and R&D.
• Transmission and power distribution as well as resource regeneration and preservation using renewable energy.
• Insurance for farmers and organic vegetables;
• To promote personal reciprocity and teamwork as well as Members’ well-being, as deemed appropriate by the Board.

Opportunities for investments and loans to Producer Company members

The Companies Act of 1956 had a special clause that made it possible for producers to get loans. The following methods of financial support are available to Producer Company members:

• Access to credit: Any Member may use this benefit for a maximum of six months (such facility must be regarding the business of the Company).
• Loans and advances: These loans and advances are provided to producer members in return for security and must be repaid within seven years of the distribution date.
• A NABARD Loan: Producer Companies can gain from NABARD’s support and financial support. In 2011, NABARD established a Producer Organization Development Fund (PODF) worth Rs. 50 crore from its operational excess.
• Inheritance (Taxability of Producer Company): Income from agribusiness is not subject to federal income taxes, according to Section 10(1) of the Tax Reform Act of 1961. The Income Tax Act doesn’t define any particular tax incentives or exemptions for producers. On the other hand, certain tax breaks and incentives are accessible based on the agricultural operations of the Producer Company.

Producer Company Registration Procedure

1. The proposed initial Directors of the firm shall first get a Digital Signature (DSC) and Director Identification Number (DIN).
2. Once a Director Identification Number (DIN) and Digital Signature (DSC) have been obtained, a name reservation application must be submitted to the appropriate Registrar of Companies (ROC).
3. A Producer Company’s name must end with the phrase “Producer Limited Company” in order to comply with the Act.
4. Once the proposed name has been approved by the Registrar of Companies (ROC), an application for incorporation must be submitted in the format required for the establishment of the Producer Company.
5. The Registrar will approve the application and issue a Certificate of Incorporation after he is satisfied that all necessary paperwork has been submitted for the incorporation of the Producer Company.
6. When a Producer Company is formed, the MOA and AOA must be written down, signed by each member, and officially attested by a practicing professional who will also serve as a witness. These are required to be attached along with the Form SPICe+ Part B.

Documentation and Process required to establish a Producer Company 

• Getting Digital Signature Certificates (DSC) from each director is the initial step. Documents needed to apply for a DSC include:

1. Director’s PAN Card
2. Director’s Aadhar card
3. Passport size photo
4. Email I.D.
5. Phone Number

• The following paperwork must be prepared after the ROC approves the name:

1. The company must include all of its intended goals while drafting the Memorandum of Association.
2. All of the company’s bylaws must be included in the drafted Articles of Association.
3. A professional’s declaration must be written in the format of the form INC- 8.
4. All of the proposed company’s subscribers must sign an affidavit stating their legal capacity to operate as subscribers.
5. It is necessary to get a utility bill and a NOC from the owner whose address will serve as the company’s registered office. A lease agreement will be included with the form if it is not owned.
6. Confirmation of the directors along with their approval in a Form.

• The above paperwork must be uploaded to the ROC website as an attachment to different Forms.
• After adequate verification, a Certificate of Incorporation from the ROC is required to start making deals.

This type of business encourages the primary producer, who is a member of a low-income group, to maximize their income through collective bargaining and direct sales of the products.

Taxability of Producer Company

The Taxability of a Producer Company depends on the income from agriculture which is excluded under a section of the Income Tax Act of 1961. However, the section’s exemption for agricultural revenue can differ sometimes.

The Income Tax Act does not specifically mention any particular tax benefit, but by definition producer corporations are given exceptional tax breaks or benefits.

For example – Income from selling cultivated green tea leaves counts as agricultural income and is completely tax-free under the Income Tax Act. However, only 60% of such income will be regarded as agricultural income and 40% of such income will be taxed if the tea leaves are further processed to produce tea. Thus, clearly, a Producer Company’s tax benefit and exemption fully depend on the activity it carries out.

Conclusion

Registrars must approve the application for incorporation before they may issue a Certificate of Incorporation for a Producer Company. There are no limitations for the members of a Producer Company. A Producer Business must never be regarded as a public limited company, even if its name finishes with the words “Producer Limited Company.”