In this article, we will take an in-depth look at a producer company and the benefits of opening a producer company in India

There are several perspectives from which you can look at a company in terms of categorizing it. A company can be private or public. A company can be listed or unlisted.

A company can be a manufacturer, wholesaler or retailer. In this article, we are going to take a detailed look at a category of companies called Producer Companies

.A 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 of goods. It also includes processing like distilling, preserving, brewing, drying, venting, canning and packaging. A producer company also involves manufacturing and supplying machinery and equipment sales.

In India the majority of them carry on activities such as production, procurement, harvesting, pooling, grading, handling, marketing, selling and export of main produce of its 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. 

Click here to know more about Incorporation of Producer Company

Types of Producer Companies

There are five broad categories of producer companies. Let us take a look at those

1. Production businesses – These are businesses that are primarily involved in production, manufacturing or procurement of the primary produce
2. Marketing businesses – These are businesses that market, educate and promote the primary produce amongst the consumers
3. Technical service businesses – These are businesses that conduct research into the existing practices of production and provide training and technical assistance to the producers of the primary products
4. Financing Businesses – These are businesses that provide long term and short term financing to the producers of the primary product.
5. Infrastructure businesses – These businesses provide ancillary infrastructural services that facilitate the production of the primary product such as electricity, irrigation etc.

Silient Features of a Producer Company

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.

Why Incorporate a Producer Company?

The following are some of the reasons why starting a producer company may be suitable for an entrepreneur.

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 of a Producing Company

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

Disputes relating to the producer’s companies are 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

The Indian economy is basically an agricultural economy. More than two-thirds of the population in India depends upon agriculture for their livelihood. The Indian Income Tax Act, 1961 Act, explicitly exempts tax on 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 a 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.

Conclusion:

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 are restricted by share capital. The maximum members in the company can be up to 50. Minimum 5 directors are required to run the producer company and every director should possess DSC(Digital Signatures Certificates) and DIN(Director Identification Number).

The formalities regarding registering a producer company will require some kind of professional guidance and assistance in order to ensure that the process is free of errors and smooth.

So if you have any queries or require help with starting your producer company, get in touch with us and we will ensure that our team of experts assist you with the right kind of advise and assistance.

Read More,

• Why is FPO not successful?
• Reasons to Register your Producer Company
• Steps to Form a Producer Company