To empower cooperatives to operate as corporate entities, the Ministry of Corporate Affairs developed the idea of the Producer Company in India. To know more, keep reading.
Activities Authorised Under Producer Company: Agriculture is the backbone of India’s economy. Agribusiness is the primary source of income for almost 60% of the country’s residents. There has been a protracted fight for primary producers and farmers in India.
The Indian government formed an expert group under the leadership of economist Y.K. Alagh to investigate these issues. They brought the idea of producer corporations to India in 2002. Several resources such as inputs, financing, manufacturing technologies, and markets have since been made available via their efforts.
The Meaning of a Producer Company
Producer Companies are groups of farmers/agriculturists committed to improving their living conditions and ensuring that their support, revenues, and profitability are maintained at a high level of quality. It is possible to form a Producer Company with ten persons (or more) or two institutions (or more) with a commercial purpose of marketing, grading, export, selling, or other companies.
- In the interests of its active members, it is also necessary that the Producer Company engages in any of the following actions on their behalf, whether directly or via third parties.
- Preservation, drying, distillation, brewing, vinting, canning, and packaging of its members’ products are all included in the processing.
- Producing and supplying machinery, equipment, and consumables mainly to the company’s employees and contractors
- Educating its members and the public about the benefits of mutual help;
- Serving its members by providing technical and consulting services, as well as training, research, and development;
- Energy production and distribution; the revitalisation of land and water resources; their utilisation; the conservation and communication of primary produce; and the development and transmission of electricity
- Production or principal product insurance;
- Cultivating a spirit of cooperation and mutual aid;
- Whatever the Board deems appropriate in terms of member well-being and convenience
- In any other way, promote the members’ concepts of reciprocity and mutual help, whether or not they are directly related to any of the activities above;
- Lending provides other financial services to its members for purchase, processing, marketing, and the like.
The Advantages Of Registering A Production Company
A Producer Company’s ownership and membership are restricted to “primary producers” or “Producer Institutions,” and one cannot trade the member equity. Due to this finding, there is no way to take over or deprive primary producers of their livelihoods.
There must be a minimum of 10 producers to create a PC, although the maximum number of members is limitless. As a result, even a production business with just ten members is easily formed.
The Private Limited Company Act provisions apply to producer businesses, except the clauses mentioned from 581-A to 581-ZL of the Producer Company Act, that set it apart from a conventional private or limited company. This way, a manufacturer’s firm has a structured appearance of professionalism.
Those who possess shares are only liable for the amount they owe on those shares. Consequently, the personal assets of members are safeguarded against company losses.
Production Firms’ Legal Responsibilities
The Producer Company must deal with the products of its members and is permitted to do the following:
- Preserving, brewing, vinting, dehydrating and packing its members’ products are all examples of the term “processing.”
- Supplying its producer members with equipment, machinery, and consumables;
- Educate the producer members of the production firm and others on the concepts of mutual help
- All other necessary actions for the benefit of the producer members’ interests; to provide consulting services, technical services training, R&D
- Regeneration and conservation of natural resources via renewable energy, as well as the transmission and distribution of electricity.
- Primary-produce and farmer insurance;
- To encourage the practice of reciprocity and cooperation amongst people, and
- Members’ well-being, as determined by the Board;
- Supporting its producer members financially, whether via the provision of financing or any other means of obtaining goods or services.
Any additional activity that is not directly related to the primary goals of the production business but instead serves to foster mutual help and the ideals of mutuality among its members.
According to the Companies Act of 1956, “primary produce” refers to a farmer’s agricultural output that includes animal husbandry, the cultivation of plants and flowers such as roses and orchids, and the rearing of birds and bees. It also provides produce from hand-looming, handicraft and other cottage industries and the products of forestry and farming plantations.
The Steps to Getting Started
Similar to a Private Limited Company, establishing a Producer Company is straightforward. The proposed initial directors of the firm must first get digital signatures (DSCs) and director identification numbers (DINs). An application for name reservation must be submitted to the appropriate Registrar of Companies after Digital Signature (DSC) and Director Identification Number (DIN) have been acquired (ROC).
The name of a producer firm shall conclude with “Producer Limited Company” as mandated by the Act. To create the Producer Company, an application for incorporation must be submitted to the Registrar of Companies (ROC) after the ROC has authorised the proposed name. The Registrar will issue a Certificate of Incorporation to the Producer Company if he is satisfied with the application and the needed documentation.
Loans and investment opportunities
A specific provision was introduced in the Companies Act 1956 to allow producers to get loans. Members of a Producer Company may be eligible for financial support via the following methods:
Access to credit:
For a maximum of six months, any member may use this benefit (such facility must be in connection with the business of the Company).
Advances and loans:
These loans and advances are made available to producer members in exchange for collateral and must be repaid within seven years of the distribution date.
A NABARD Loan:
Producer Companies benefit from NABARD’s support and financial aid. Out of its operational surplus, NABARD established an Rs. 50 crore Producer Organization Development Fund (PODF) in 2011.
Inheritance (Taxability of Producer Company)
Agribusiness revenue is free from federal income taxes under Section 10(1) of the Tax Reform Act of 1961. However, the agricultural income exemption given by Section 10(1) may vary depending on the kind of agricultural activity being carried out.
The Income Tax Act defines no unique tax advantage that gives producers special tax benefits or exemptions. On the other hand, specific tax incentives and exemptions are available based on the producing company’s agricultural activities.
For example, income from the sale of green tea leaves is tax-free under the Income Tax Act since it is an agricultural income. To put it another way, only 60 percent of the money generated from the processing of tea leaves will be deemed agricultural, and 40 percent would be taxed.
To be granted a Certificate of Incorporation for a Producer Company, Registrars must be satisfied with the application for incorporation. Following incorporation, a producer company will operate in the same manner as a private limited company, except for a few exceptions. Regarding producer companies, there is no restriction on the number of members they may have.
Furthermore, even though the name of a Producer Company ends with the words “Producer Limited Company,” it must not be regarded as a public limited company under any circumstances. For guidance related to legal subjects and enquiries, visit the website of Vakilsearch.