Why Should One Start A Producer Company

Last Updated at: Nov 23, 2020
In five years to 2023-24, the Indian Government plans to set up and support 10,000 new producer companies or Farmer Producer Organisations (FPOs). In these companies, farmers can come together as shareholders to expand the production and marketing of their agricultural output. Under new FPO guidelines, the government will provide financial support of up to Rs 18 lakh to new producer companies  for the first 3 years.


Producer company is a registered company under companies act in 2013. It carries important activities such as marketing, production, pooling, grading, selling, procurement, harvesting and handling. It also includes processing like distilling, preserving, brewing, drying, venting, canning and packaging. The producer company involves manufacturing, supplying and machinary and equipment sales.

Producer Company is a company registered under the Companies Act, 2013. It majorly carries on the activities such as production, procurement, harvesting, pooling, grading, handling, marketing, selling, export of main produce of members or import of goods and services for their own benefit. Processing includes preserving, distilling, drying, brewing, canning, venting and packaging of the produce of its members. Producer Company also includes manufacture, supply or sale of machinery, equipment or consumables mainly to its members.

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Salient Features

1)   The producer company which is registered is treated as a private limited company.

2)   Producer companies are with limited liabilities and are limited only by share capital.

3)   The maximum number of the members in the company can exceed 50.

4)   It will never become a public limited company.

5)   Minimum 5 directors are necessary to run a producer company. All the directors must possess DIN (Director Identification Number) and DSC (Digital Signatures Certificates).

6)   Minimum paid-up certified capital to incorporate a producer company is of Rs.5 lakh.

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Why Producer Company?

1)   To offer a statutory and governing framework that generates the potential for producer-owned enterprises to compete with rival enterprises on a competitive footing.

2)   To provide for the process of registration and formation of “Producer Companies” which, inter alia carries the ideologies of “mutual assistance” and “Co-operation” within the more generous regulatory framework afforded by the company law with apt alteration.

3)   To provide an opportunity, to the present large multi-state cooperative societies and institutions, to voluntarily transform themselves into the new form of producer companies.

Benefits to members

1)   Members will primarily receive only value for the products combined and supplied as the directors may regulate. The pending amount may be expended later either in the form of cash or in the form of allotment of equity shares.

2)   Members will be entitled to receive bonus shares.

3)   There is a provision for the circulation of patronage bonus after the annual accounts are accepted. Patronage bonus means payment out of excess income to members in the proportion to their respective patronage.

Dispute Resolution

Dispute relating to the producer’s companies are to be settled by arbitration or conciliation under the Arbitration and Conciliation Act, 1996 as if the parties to the disagreement have asserted in writing to such procedure.

Audit and Internal Audit Requirements

Producer Companies will carry out an internal audit of its accounts, at fixed intervals according to its articles of association. Along with the internal audit, annual audit report to the members of the company is also made by the auditor on examining the accounts. According to the information given by him after examining the accounts in the required format will give a true and fair view of the company.

Tax Benefits

Indian economy is basically an agricultural economy. More than two-thirds of the population in India depends upon the agriculture for their livelihood. The Indian Income Tax Act, 1961 Act, explicitly exempts tax on the agricultural income under section 10(1). However, the exemption on the agricultural income sometimes varies depending upon the type of agricultural activity being carried on.

It is to be noted that though the Income Tax Act does not give any specific benefits or exemptions to the producer companies as such, but conditional to the type of agricultural activity it carries on, some tax benefits can be availed.

For example, if green tea leaves are grown and sold directly without any kind of processing, then the income derived from such method is measured as agricultural income under the Income Tax Act and such income is 100 % tax-free. But if the green tea leaves are processed and the tea is manufactured only 60% of the income is derived from such kind of activity. Then it is measured as agricultural income and the tax exemption can be availed only on the 60% of that income. Thus, it is clear that the tax exemption to a producer company depends upon the kind of activity it carries on.

So, these are some of the reasons as to why one should start a producer company in India.

The producer company is registered as a private company. The companies have limited liabilities and restricted by share capital. The maximum members in the company can be upto 50. Minimum 5 directors are required to run the producer company and every directors should possess DSC(Digital Signatures Certificates) and DIN(Director Identification Number).

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