This FAQs for Producer Company guide provides comprehensive answers to key questions related to Producer Company incorporation, membership eligibility, taxation, financial assistance, governance, voting rights, and operational regulations. Whether you are a primary producer looking to form a Producer Company or an entrepreneur seeking to understand the legal and financial obligations, this guide will help you make an informed decision.
A Producer Company is a unique business entity in India designed to empower primary producers such as farmers, artisans, and small-scale manufacturers by providing them with a structured corporate framework. Introduced under the Companies (Amendment) Act, 2002, Producer Companies blend the benefits of a cooperative society with the legal and financial advantages of a Private Limited Company.
Governed by the Companies Act, 2013, Producer Companies enable collective production, procurement, marketing, processing, and distribution while ensuring better market access, financial stability, and regulatory compliance. This model helps small producers pool resources, gain access to institutional credit, and achieve scalability while retaining ownership and control.
The Ministry of Corporate Affairs (MCA) oversees the incorporation and compliance of Producer Companies, ensuring structured governance, tax benefits, and financial transparency. With mandatory board structures, capital requirements, and voting rights, Producer Companies ensure democratic decision-making while fostering economic growth in rural and semi-urban areas.
This FAQs for Producer Company guide provides comprehensive answers to key questions related to Producer Company incorporation, membership eligibility, taxation, financial assistance, governance, voting rights, and operational regulations. Whether you are a primary producer looking to form a Producer Company or an entrepreneur seeking to understand the legal and financial obligations, this guide will help you make an informed decision.
Common FAQs on Producer Company in India
Common FAQs regarding Producer Company in India include:
What is a Producer Company?
A Producer Company is a corporate entity formed by primary producers, such as farmers, artisans, or small-scale manufacturers, to collectively engage in production, procurement, marketing, processing, and distribution of their goods and services. It combines the benefits of a cooperative society with the regulatory framework of a Private Limited Company under the Companies Act, 2013.
What is the historical background of Producer Companies in India?
The concept of Producer Companies was introduced based on the recommendations of the Khusro Committee (2000) and was legally incorporated under the Companies (Amendment) Act, 2002. It aimed to bridge the gap between cooperatives and corporate structures, providing small producers with a legal framework for collective business operations while ensuring better governance and financial stability.
Explain in detail the concept of a Producer Company as per the Companies Act.
As per Section 581A to 581ZL of the Companies Act, 1956, and its amendments under the Companies Act, 2013, a Producer Company is a legally registered body of primary producers that enables them to form a corporate entity for conducting business. It allows farmers and producers to procure, produce, process, distribute, and market agricultural and allied products while maintaining financial transparency and compliance.
A Producer Company is governed under which law?
A Producer Company is governed under Part IXA of the Companies Act, 1956, which was later included in the Companies Act, 2013 with relevant amendments. It is also subject to regulations by the Ministry of Corporate Affairs (MCA) and, in certain cases, monitored by the Reserve Bank of India (RBI) for financial transactions.
What is the basic working and management structure of Co-operative Institutions in India?
Co-operative institutions in India follow a democratic structure, where members elect a Board of Directors responsible for decision-making. The governance structure of cooperative institutions is regulated under the Cooperative Societies Act of respective states, ensuring financial accountability, profit-sharing, and social welfare activities for members.
What are the types of Producer Companies?
Producer Companies can be classified into the following categories:
- Production Businesses – Engaged in the production of primary goods such as agriculture and dairy.
- Marketing Businesses – Focused on procurement, storage, and distribution of goods produced by members.
- Processing Businesses – Involved in value addition like food processing, dairy processing, and packaging.
- Technology Service Companies – Provide training, research, and development for improving productivity.
- Finance Businesses – Offer financial assistance to members for better operational sustainability.
What are the advantages of forming a Producer Company?
- Limited Liability Protection: Members are only liable up to their shareholding.
- Legal Recognition: Ensures structured governance and compliance.
- Better Market Reach: Enables small producers to access wider markets collectively.
- Financial Assistance: Easier access to credit, grants, and subsidies from government and financial institutions.
- Tax Benefits: Eligible for various exemptions under government schemes.
- Collective Growth: Promotes cooperative decision-making and profit-sharing among members.
What is the difference between a Producer Company, Private Limited Company, and Public Limited Company?
| Feature | Producer Company | Private Limited Company | Public Limited Company |
|---|---|---|---|
| Ownership | Primary producers (farmers, artisans) | Private individuals or corporate entities | General public through shares |
| Membership Limit | No limit | Maximum 200 members | Unlimited members |
| Capital Raising | Through members, grants, and financial institutions | Private investments & loans | Public issue of shares & stock market |
| Governance | Governed by members & Board of Directors | Managed by private owners & directors | Managed by shareholders & public board |
| Regulatory Law | Companies Act, 2013 (Part IXA) | Companies Act, 2013 | Companies Act, 2013 |
Whether a Producer Company is considered a Private Company or a Public Company?
A Producer Company is treated as a Private Limited Company in terms of corporate structure, but it enjoys exemptions from the membership limit (200 members), making it distinct from conventional Private and Public Limited Companies.
Whether the limit of 200 members is applicable to a Producer Company?
No, unlike Private Limited Companies, a Producer Company has no upper limit on the number of members, allowing unlimited membership for eligible primary producers.
How is a Producer Company formed?
A Producer Company is formed by at least 10 individuals (producers) or 2 producer institutions, with the primary objective of benefiting its members through collective production, marketing, and services. The incorporation process involves:
- Obtaining Digital Signature Certificate (DSC) and Director Identification Number (DIN) for directors.
- Name Reservation under the Companies Act, 2013.
- Filing incorporation documents such as MoA, AoA, and declaration forms with the MCA.
- Receiving the Certificate of Incorporation from the Registrar of Companies (ROC).
How many members are required to form a Producer Company?
A minimum of 10 individual producers or 2 producer institutions is required to incorporate a Producer Company.
Who can be a member of a Producer Company?
Only primary producers, including farmers, artisans, fishermen, and other small-scale producers, can become members of a Producer Company.
What happens if a member of the Producer Company ceases to be a primary producer?
If a member no longer qualifies as a primary producer, they may be required to transfer their shares to other eligible members, as per the Articles of Association (AoA) of the company.
What are the benefits derived by the members of Producer Companies?
- Better market access and price realization for their produce.
- Access to credit facilities and financial aid.
- Collective bargaining power in procurement and sales.
- Profit-sharing in proportion to their business volume.
What is the minimum capital required for the formation of a Producer Company?
A Producer Company must have a minimum paid-up capital of ₹5 lakh at the time of incorporation.
What are the types of shares a Producer Company can issue?
A Producer Company can issue equity shares only, which can be held exclusively by its members.
Can a Producer Company give special rights to the members?
Yes, special rights regarding voting, profit-sharing, and decision-making can be granted to members as per the AoA.
Whether the shares of a Producer Company are transferable?
No, shares of a Producer Company cannot be freely traded but can be transferred among members as per the AoA.
Can the members of a Producer Company appoint a nominee?
Yes, members can nominate successors to inherit their shares in case of their demise.
How are the voting rights of members determined in a Producer Company?
Voting rights are determined based on participation in business activities rather than shareholding, ensuring equitable decision-making.
Explain the procedure for the incorporation of a Producer Company.
The process for incorporating a Producer Company involves the following steps:
- Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN) for all proposed directors.
- Reserve a unique company name through the MCA portal.
- Draft the Memorandum of Association (MoA) and Articles of Association (AoA), outlining the objectives and governance of the company.
- File incorporation documents with the Ministry of Corporate Affairs (MCA) through SPICe+ form.
- Obtain the Certificate of Incorporation (COI) from the Registrar of Companies (ROC).
- Apply for PAN, TAN, and bank account setup post-registration.
How much time is required to form a Producer Company?
The registration process typically takes 15-20 working days, depending on the completion of document verification and government approvals.
Whether existing Inter-State Co-operative Societies can be registered as Producer Companies?
Yes, existing Inter-State Co-operative Societies can be converted into Producer Companies by following the provisions under Section 581J of the Companies Act, 1956.
Whether Table F of Articles of Association under Schedule I of the Companies Act 2013 is applicable?
No, Table F under Schedule I of the Companies Act, 2013, which applies to Private Companies, does not apply to Producer Companies. Instead, Producer Companies must have their customized Articles of Association (AoA) governing their operations.
What is the minimum number of directors required for the formation of a Producer Company?
A Producer Company must have a minimum of five directors and can have a maximum of fifteen directors at any time.
What is the period of directorship in a Producer Company?
A director in a Producer Company can hold office for a minimum of one year and a maximum of five years, subject to reappointment by members.
How is a director appointed in a Producer Company?
Directors are appointed by members in the General Meeting, following the provisions of the Articles of Association (AoA) of the Producer Company.
What are the circumstances under which a director vacates office?
A director vacates office under the following circumstances:
- Resignation from the post of director.
- Removal by the members through a resolution.
- Disqualification under the Companies Act, 2013.
- Failure to attend Board Meetings for 12 months.
- If found guilty of financial mismanagement or fraud.
What are the powers and functions of the Board of Directors of a Producer Company?
The Board of Directors is responsible for:
- Strategic decision-making and policy formulation.
- Approving and managing financial transactions.
- Ensuring compliance with regulatory laws and the Articles of Association.
- Approving loans, investments, and operational expenditures.
- Representing the company in legal and contractual matters.
What is the liability of directors in a Producer Company?
Directors are personally liable for fraudulent activities, misrepresentation, and non-compliance. However, their liability is limited to their shareholding in the company unless found guilty of gross misconduct.
What are the requirements for Board Meetings?
- The first Board Meeting must be held within 30 days of incorporation.
- A minimum of four Board Meetings must be conducted in a financial year.
- The gap between two meetings must not exceed 120 days.
- The quorum must be one-third of the total number of directors or two directors, whichever is higher.
How many Board Meetings must be held in a financial year?
A Producer Company must hold at least four Board Meetings annually.
What are the provisions regarding the Annual General Meeting for a Producer Company?
- The first AGM must be held within 90 days from the end of the first financial year.
- Subsequent AGMs must be held annually within six months from the end of the financial year.
- The AGM is responsible for approving financial statements, dividend declarations, and director appointments.
What is the business to be transacted in the First Annual General Meeting of a Producer Company?
The First AGM of a Producer Company must include:
- Approval of financial statements.
- Appointment of auditors.
- Approval of dividends and profit-sharing structure.
- Appointment or reappointment of directors.
- Discussion of business growth and operational matters.
Whether Producer Companies can appoint Committees?
Yes, Producer Companies can appoint Committees to oversee specific business functions such as finance, operations, marketing, and governance, as per their Articles of Association.
Whether the appointment of a Chief Executive is mandatory?
Yes, the appointment of a Chief Executive Officer (CEO) is mandatory for a Producer Company as per Section 581W of the Companies Act, 1956. The CEO is responsible for managing day-to-day operations and implementing the Board’s decisions.
Who is the Chief Executive of a Producer Company?
The Chief Executive of a Producer Company is an individual appointed by the Board of Directors and acts as the principal executive officer, responsible for overseeing business operations, financial management, and regulatory compliance.
What are the powers and functions of the Chief Executive?
The Chief Executive is responsible for:
- Executing policies and decisions formulated by the Board of Directors.
- Supervising financial management and operational functions.
- Maintaining company records and regulatory filings.
- Representing the company in legal and administrative matters.
- Managing employee relations and business growth strategies.
Whether the appointment of a Company Secretary is mandatory for a Producer Company?
A Company Secretary (CS) is mandatory if the Producer Company has an average annual turnover exceeding ₹5 crore in three consecutive financial years.
What are the duties of an Auditor in a Producer Company?
The Auditor in a Producer Company is responsible for:
- Conducting an annual financial audit.
- Ensuring compliance with accounting standards and statutory filings.
- Verifying the accuracy of financial records and balance sheets.
- Reporting financial irregularities (if any) to shareholders and regulatory authorities.
What are the requirements with respect to Internal Audit for Producer Companies?
- Internal audits must be conducted periodically based on company policies.
- The Board of Directors may appoint an internal auditor to monitor financial transactions.
- The internal audit ensures transparency and accountability in business operations.
What are the tax benefits available to a Producer Company?
- Agriculture-based Producer Companies enjoy 100% tax exemption for the first five years under Section 80P of the Income Tax Act.
- Producer Companies engaged in processing and marketing can avail deductions on operational expenses.
- Certain GST exemptions are applicable to agricultural activities.
Whether Producer Companies are required to transfer any funds to general reserves?
Yes, every Producer Company must transfer at least 10% of its net profit each financial year to general reserves before declaring dividends.
Can Producer Companies advance loans or provide financial assistance or credit facilities to their members?
Yes, Producer Companies can provide loans, credit, or financial assistance to members under the following conditions:
- Loans must be granted only to active producer members.
- Loan amount must be within the prescribed fund limits set by the Board.
- Proper documentation and approval must be secured before disbursing funds.
Elaborate on the aspect of investment by a Producer Company in other Companies, the formation of subsidiaries, etc.
- A Producer Company can invest in other companies or form subsidiaries for business expansion.
- It must adhere to investment limits set under the Companies Act and obtain Board approval before investing.
- Investments must align with the core objectives of the Producer Company, such as agricultural or allied services.
Whether Producer Companies can make donations or subscriptions?
- A Producer Company cannot donate funds to political parties or unrelated charities.
- Donations or subscriptions can be made only for purposes beneficial to the members, such as community development, research, and welfare programs.
Conclusion
A Producer Company is a structured and legally recognized business model that enables primary producers to collectively participate in production, marketing, and financial services while benefiting from limited liability and better financial access. It provides a strong alternative to cooperative societies by offering governance stability, financial transparency, and operational efficiency.
However, Producer Companies must adhere to compliance regulations, tax obligations, and governance requirements to function effectively and avoid penalties. Ensuring regular board meetings, financial reporting, and reserve fund allocations is crucial for long-term sustainability.
For those looking to establish a Producer Company, expert guidance on registration, compliance, and financial planning can help streamline the process and ensure regulatory adherence.
