India's economy is heavily reliant on agriculture. The livelihood of over 60% of the populace is based on agricultural pursuits. However, farmers and primary producers have fought a long battle in India. The concept of producer companies is presented to the Indian economy in 2002. Since then, they have assisted primary producers in gaining access to markets, input, loans, and other resources.
What is a Farmer Producer Company?
A producer company is a group of farmers or other agricultural professionals who have obtained legal recognition and whose goals are to raise their standard of life and guarantee that their access to resources, earnings, and profitability are all in good standing. The requirements pertaining to a Producer Company under Part IXA of the Companies Act, 1956 shall continue to apply, according to Section 465(1) of the Companies Act, 2013 (the "Act"). Accordingly, a Producer Company can be established under the Act by 10 individuals (or more), 2 institutions (or more), or a combination of both (10 persons and 2 institutions) that have the same commercial aim.
An Act-registered farmer producer business is a cross between a cooperative society and a private limited company. They are governed democratically, and regardless of the number of shares held, each producer or member has an equal right to vote.
The farmer-producer company's primary goal is to make it easier for cooperative businesses to become corporations and to enable the conversion of already-existing cooperative businesses into corporations.
According to the Act, a production company's goals should concern all or some of the following:
- a) Production, harvesting, purchasing, grading, pooling, handling, marketing, selling, exporting the primary production of the concerned Members, or services or importing goods for their benefit. The Producer Company may, however, engage in any of the aforementioned activities directly or via another institution.
- b) Processing the produce of its Members, such as canning, drying, distilling, brewing, venting, and packing.
- c) Manufacturing, selling, or providing consumables, mostly to its members.
- d) Teaching its Members and others about the concepts of mutual help
- e) Providing technical services, consulting services, training, development and research, and all other endeavours for the advancement of its Members' interests.
- f) The production, transmission, & distribution of electricity, as well as the redevelopment of water and land resources and the use, preservation, and communication of primary products.
- g) Producer or main produce insurance.
- h) Supporting cooperative and cooperative methods.
- i) Any other amenities or welfare measures the Board deems appropriate for the advantage of the Members.
- j) Any additional action that is related to or associated with any of the activities listed in clauses (a) through I as well as any additional activities that may further the principles of reciprocity and mutual aid among the Members.
- k) Financing of purchasing, processing, marketing, and other operations mentioned in paragraphs (a) through (j), including providing its Members with credit facilities or other financial services.
- Processing of its members' produce, which also includes preservation, brewing, vinification, drying, distillation, canning, and packing;
- The production, sale, or provision of consumables, machinery, or equipment to its producer members;
- To instruct the producer members of the producer firm and others on the concepts of reciprocal help;
- To provide technical assistance, training, research and development, and any other services necessary to advance the interests of producer members;
- Power production, distribution, and transmission, primary produce preservation and communication, revitalization of water and land resources,
- Insurance for fresh products and the grower; promotion of the concepts of cooperation and mutual aid;
- The welfare of members, as the Board may determine;
- Financing of purchasing, marketing, processing, and other tasks including providing credit facilities or other forms of financial support to its producer members.
- Any additional endeavour (related to or incidental to the primary goals of the producer firm) that fosters cooperation and the mutuality of the producer members.
Advantages of Farmer Producer Company
- Principal Producers & Producer Institutions are the only permitted owners and members of a Producer Company, & member equity cannot be transferred. No one is able to take over the company or strip the primary producers of their means of subsistence as a result.
- A farmer producer company must have a minimum of 10 producers in order to be formed, but it can have an unlimited number of members and can increase its membership as necessary. This makes forming a production firm for even ten persons straightforward.
- The rules of the Private Limited Company Act will apply to producer businesses, with the exception of the requirements mentioned in the Producer Company Act that set it apart from a conventional private or limited company refer to the Producer Company Act for facts. A production company now has a legal form.
- The due balance of the shares that the members possess is the only sum for which they are liable. The personal assets of the members are thereby shielded from losses in the firm.
Registration Process of a Farmer Producer Company
The steps that are involved in the registration process are discussed below:
- Choosing a name for the production firm is the first stage in the registration procedure. For this, fill out Form SPICe+ and submit it to the Registrar of Companies (ROC), listing two names in the order of choice and their importance. The terms PRODUCER COMPANY must be at the conclusion of the name.
- Getting the Digital Signature Certificate from each director is the second step.
Documents needed to apply for a DSC include:
Director's PAN Card
- A self-attested identity proof, an address proof, and a photo must be submitted with form DIR-3 or SPICe+ in order to get the Director Identification Number after acquiring the DSC.
The following paperwork must be produced once the ROC has authorised the name:
- The firm must include all of its intended goals while drafting the Memorandum of Association.
- All of the company's bylaws must be included in the composition of the articles of association.
- All of the forthcoming company's subscribers must sign an affidavit stating their legal capacity to operate as subscribers.
- A utility bill and a NOC needs to be acquired from the proprietor whose address is to be utilised as the registered office of the firm. A lease contract will be included with the form if it is not owned.
- All of the written documentation will be posted to the ROC website as an attachment to Form SPICe+. The ROC will issue an Incorporation Certificate after sufficient verification, at which point the firm may begin conducting business.
Loans & Investments
As was already indicated, the Producer Company is made up of primary producers who occasionally require financial assistance. As a result, the Act was amended to include a particular provision for lending to producer members. A Farmer Producer Company can help its members financially by using any of the following methods:
Any member may utilise the credit option for a maximum of six months.
Loans & advances:
These are given to producer members in exchange for security and must be repaid within seven years of the date they were disbursed.
Loan from NABARD
To satisfy the requirements of Producer Companies, NABARD offers help financially and with other forms of support.
Out of its operational surplus, NABARD established the Producer Organization Development Fund (PODF) in 2011 for a total of Rs. 50 crore.
Taxability of a Producer Company
Agricultural income is banned under Section 10(1) of the Income Tax Act of 1961. However, depending on the type of agricultural activity done, section 10(1)'s exemption for agricultural revenue may not always apply.
The Income Tax Act does not specifically mention any tax advantage that, by definition, gives producer corporations any tax breaks or exemptions. Some tax advantages and exemptions, however, are dependent on the producing company's agricultural activities.
Between a Private & a Public Company is a Producer Company. These companies exhibit cooperative society traits. Producer Companies may only be incorporated and they are own limited to "Principal Producers" or "Producer Institutions."
"Primary Producers" are those who participate in the Primary Produce process.
Primary produce includes agricultural outputs from horticulture, animal husbandry, forestry, re-vegetation, beekeeping, & plantation farming, among other fields.
It may also include the items produced by those who work in cottage industries like handicrafts, looms, and others, as well as byproducts and related businesses.