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An analysis on producer company

CS Vikas Gupta , Last updated: 22 October 2016  
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BACKGROUND:

According to Sec. 581C (1) of the Companies Act 1956, Producer Company is a company where there are ten or more individual, or each of them is a producer in any two or more producer institutions. It can also be combination of ten or more individuals or producer institutions. It should be desirous of performing a producer company. It should have its objects specified under Sec. 581B of the Companies Act of 1956. A Producer Company should also comply with the other provisions of the Companies Act of 1956.

By bill of Ministry of Company Affairs, the Companies Act, 1956 amended by inserting Part IXA, paving a way for the incorporation of Producer Companies. The Act has allowed primary producers to organize themselves to gain a maximum profit from the market oriented economy.

The provisions of Part IX A of the Companies Act, 1956 shall be applicable mutatis mutandis to a Producer Company in a manner as if the Companies Act, 1956 has not been repealed until a special Act is enacted for Producer Companies (1st Proviso to Section 465(1) of Companies Act, 2013)

Producer Company under Companies Act, 2013 mentioned under Section 465 (1) and governs under chapter IXA of Companies Act, 1956.

Therefore, there are no separate provisions under the Companies Act, 2013 regarding producer Company. As mentioned above it still governs by chapter IXA of Companies Act, 1956.

For this, a new Part IXA, divided into 12 chapters and 46 sections
Interestingly numbered as 581A to 581Z and 581ZA to 581ZT.

However, the section that defines the various types of companies that can be incorporated under the Act remains unaltered.

1. A producer company is a hybrid between a private limited company and a cooperative society.
2. It combines the goodness of a cooperative enterprise and the vibrancy and efficiency of a company.
3. It accommodates the unique elements of cooperative business with a regulatory framework similar to that of a private limited company.

2. PROVISIONS UNDER COMPANIES ACT, 2013

i. Important Provisions Relating To Producer Company:

i. The members have necessarily to be primary producers
ii. Name of the company shall end with the words“Producer Company Limited”.
iii. The limit of maximum number of members is not applicable to these Companies
iv. On registration, the producer company shall become as if it is aPrivate Limited Company for the purpose of application of law and administration of the company
v. Minimum No. of 10 member (individual).
vi. Share capital of a Producer Company shall consist of equity shares only
vii. Minimum and not more than 15 directors
viii. Producer Company can carry only activity prescribed under the Act.
ix. Only of individuals, then voting rights shall be based on a single vote for every member.
x. A full time chief executive Officer should (CEO) be appointed by the board.

Initiator could be ‘a person’ or ‘a group of persons’ who takes the responsibility to initiate and establish a producer company. Further, ‘initiator’ could also be one of the promoters of the company.

ii. Section 465 of the Companies Act, 2013:

i. The Companies Act, 1956 and the Registration of Companies (Sikkim) Act,1961 (hereafter in this section referred to as the repealed enactments) shall stand repealed.

ii. The provisions of Part IX A of the Companies Act, 1956 shall be applicable mutatis mutandis to a Producer Company in a manner as if the Companies Act, 1956 has not been repealed until a special Act is enacted for Producer Companies ( 1st Proviso to Section 465(1))

Therefore, there are no separate provisions under the Companies Act, 2013 regarding producer Company. As mentioned above it still governs by chapter IXA of Companies Act, 1956.

iii. Allowed Activities for Producer Companies:

A producer company is basically a body corporate registered as Producer Company under Companies Act, 2013 and shall carry on or relate to any of following activities classified broadly:-

(a) Production, harvesting, processing, procurement, grading, pooling, handling, marketing, selling, export of *primary produce of the Members or import of goods or services for their benefit.

(b) Rendering technical services, consultancy services, training, education, research and development and all other activities for the promotion of the interests of its Members;

(c) Generation, transmission and distribution of power, revitalization of land and water resources, their use, conservation and communications relatable to primary produce;

(d) Promoting mutual assistance, welfare measures, financial services, insurance of producers or their primary produce;

iv. Silent Condition for Producer Companies:

i. Only persons engaged in an activity connected with, or related to, primary produce can participate in the ownership.

ii. The members have necessarily to be primary producers.

iii. Termed as “Companies with Limited Liability” and the liability of the members will be limited to the amount, if any, unpaid on the shares.

iv. Name of the company shall end with the words “Producer Company Limited."

v. On registration, the producer company shall become as if it is a Private Limited Company for the purpose of application of law and administration of the company

vi. However, it shall comply with the specific provisions of part IXA.

vii. The limit of maximum number of members is not applicable to these Companies.

v. Incorporation:

Any of the following combination of producers can incorporate a producer company:

i. Ten or more producers (individuals); or
ii. Two or more producer institutions; or
iii. Combination of the above two (10+2).

vi. Share Capital:

i. Share capital of a Producer Company shall consist of equity shares only.
ii. Members’ equity cannot be publicly traded but only transferred

vii. Voting

a. Only of individuals, then voting rights shall be based on a single vote for every member.
b. Only of producer institutions, then voting rights on the basis of their participation.
c. Combination of individuals and producer institutions then voting rights shall be based on a single vote for every member.

viii. Director:

Every producer company is to have

i. At least 5 and not more than 15 directors.
ii. A full time chief executive Officer should (CEO) be appointed by the board and
iii. Shall be entrusted with substantial powers of management as the board may determine.

(a) If any director resigns from his post the election shall be conducted within 90 daysfrom the date of resignation of such director.

(b) The Director shall hold his office for a period not less than 1 year but not more than 5 yearsas may be specified in the articles.

(c) Every director shall be eligible for reappointment.

(d) The Directors of the Board are elected by the members in the Annual General Meeting.

(e) The Board may co-opt one or more expert directors or additional directors not exceeding one fifth of the total number of directors. The expert director and additional director shall hold the post for the period as prescribed in the articles.

ix. Reserves:

i. Every producer company has to maintain a general reserve in every financial year.

ii. Where there is no sufficient fund in any year for such transfer.

iii. The shortfall has to be made up by members’ contribution in proportion to their patronage in the business.

x. Members’ benefits:

i. Members will initially receive only such value for the produce or products pooled and supplied as the directors may determine.

ii. The withheld amount may be disbursed later either in cash or in kind or by allotment of equity shares.

iii. Members will be eligible to receive bonus shares.

iv. An interesting provision is for the distribution of patronage bonus(akin to dividend) after the annual accounts is approved:- patronage bonus means payment out of surplus income to members in proportion to their respective patronage (not shareholding).

xi. Audit:

i. Producer Companies shall carry out an internal audit of its accounts, at regular intervals in accordance with its articles of association and such an audit shall be carried on by a Chartered Accountant.

ii. The auditor shall make an annual audit report to the members of the company on the accounts examined by him.

An unnecessary stipulation is that “without prejudice to the concerned sections in the Act,” the auditors of producer companies have to specially report on some additional items such as debts due and bad debts, verification of cash balances and securities, details of assets and liabilities, loans extended to directors and details of donations and subscriptions.

xii. Striking of name

The Registrar shall strike the name of the Producer Company if the company fails to commence its business within one year from the date of registration or ceases it transactions after giving a notice to the company. Any Member of the Producer Company is aggrieved against such order

CASE STUDY:

Vanilla India Producer Company Limited (Vanilco) is a new venture, promoted by Indian vanilla farmers to protect the long term interests of vanilla growers all over the country. Vanilco is a Producer Company with the twin objective of promoting vanilla production and processing vanilla as per international standards. Vanilco is owned by farmers and it works in tandem with them to produce and market the best vanilla beans and extracts. Its goal is to ensure a just and fair value for the farmers’ produce at par with the international markets and standards. The company procures, processes, benchmarks and markets the farmer’ produce and generates profits that are distributed to share holders as handsome dividends. Today Vanilco is recognized as one of the most reliable suppliers of natural Vanilla in the market, thanks to the technical know-how, quality of products, commercial expertise and knowledge of global markets.

CONCLUSION:

It can aptly be concluded that the intention behind insertion of the concept of Producer Company in Companies Act, 1956 is to ensure a more beneficial and easy adaptable regulatory framework of such companies and it is to be well noted that whether it is a Producer Co-operative registered under Co-operative Societies Act, or a Producer Company under the Companies Act, they both serve for the common purpose as to serve its members and work for their betterment.

Important Provisions Relating To Producer Company:

i. The members have necessarily to be primary producers

ii. Name of the company shall end with the words "Producer Company Limited”.

iii. The limit of maximum number of members is not applicable to these Companies

iv. On registration, the producer company shall become as if it is private Limited Company for the purpose of application of law and administration of the company

v. Minimum No. of 10 member (individual).

vi. Share capital of a Producer Company shall consist of equity shares only

vii. Minimum 5 and not more than 15 directors

viii. Producer Company can carry only activity prescribed under the Act.

ix. Only of individuals, then voting rights shall be based on a single vote for every member.

x. A full time chief executive should (CEO) be appointed by the board.

Initiator could be ‘a person’ or ‘a group of persons’ who takes the responsibility to initiate and establish a producer company. Further, ‘initiator’ could also be one of the promoters6 of the company.

Who will bear the cost incurred to incorporate the Company?

The promoters should pull the amount needed for incorporation of a company. Amount (loan) given by the promoters in the initial stage will be reimbursed by the company.

The payment however needs to be approved by the members in the first general meeting of the Producer Company

Responsibilities for the Incorporation

It is the responsibility of the initiator to take certain steps for the incorporation of the company. S/he, along with other promoters, have to get drafted the ‘Memorandum and Articles of Association’, file them with ‘the Registrar of Companies’ along with other documents and papers, carry out corrections, if any, required by the ‘Office of the Registrar’ and finally collect the ‘Certificate of Incorporation’. Initiator also has to mobilize as well as invite people to be shareholders of the company.

4. PRE- INCORPORATION:

1. Normal Conditions:

i. At Least 10 Producer: Producer who will promote/ incorporate the Company. Promoters may be individual or producer institutes.
ii. At Least 5 Directors: Directors should be individual only.
iii. Generally, in most of the cases, Promoters and Directors are the same in Companies.

2. Obtain Digital Signature–

The Subscriber applying for availability of name and the proposed Directors need to have DSC. As per Ministry of Corporate Affairs, Class-II DSC is required for e-Filings under MCA21. Subscriber can apply with any of DSC Vender i.e. E Mudra/ Siffy/ TCS etc.

3. Obtain DIN–

As envisaged under Section 153, an individual intending to become Director needs to obtain DIN. For obtaining DIN e-form DIR-3 has to be filed which has to be certified by a practicing professional.

4. Apply For Name (INC-1):-

A Producer Company should be named using the following suffix “Producer Company Limited” appropriately indicating its status of Producer Company. The word “private” is not used in the name and the absence of which does not indicate that the company is a “public”.

i. As per section 4(4) read with rule 9 application is to be made in e-form INC-1 for reserving the name agreed to by the Promoters (Six proposed names can be given). It has to also be ensured that the name being sought for is available and it is lawful. No need to add the suffix Limited or Private Limited at the end of their name.

ii. The promoters should apply for the name of the Company to be approved with the CRC Company has to be formed in E Form- INC- 1 by payment of Rs. 1000 through Credit Card or Net Banking.

iii. One of the Promoters should fill up e-form INC-1, digitally sign by Promoter and Professional and then upload the e-Form on the MCA21 Portal. Before doing so, the following three points have to be complied with:

- All the Promoters should have their DIN No.
- At least one Promoter should have the DSC. (Class 2 Digital Signature)
- The proposed names selected should fall in guidelines prescribed.

Information Require to give in form INC-1 (Describing the Capital of Company, Main Objects, State in Which the Company is to be incorporated and to affix the Digital of Applicant).

The reservation by the Registrar of name applied for is valid for 60 days from the date of application. Hence, if a company is proposed to be registered with the said name referred to above, the promoters shall produce the documents to the Registrar for registration with in a period of 60 days from the date of application for name. If Promoters fail to file all the relevant form for incorporation within 60 days, then name will not be Available for you, Promoter have to file form INC-1 again for approval of Name.

After Name Approval Process:
Once Name is approved by ROC, following are the Pre-Incorporation Steps:

5. Drafting of Memorandum of Association (MOA) and Article of Association (AOA):

Drafting of Memorandum of Association (MOA) and Article of Association (AOA) is generally a step subsequent to the availability of name made by the registrar It should be noted that the main objects should match with the objects shown in e-Form INC-1 (Objects for Producer Company are restricted).

These two documents are basically the charter and internal rules and regulations of the Company. Therefore, it must be drafted with utmost care and with the advice of the professional. The Directors/ promoters with the help of professional draft MOA and AOA.

AOA (Draft Attached at the end):
Article of Association contains the internal regulations of the Company so care should be taken while drafting it.

MOA (Draft Attached at the end):

Procedure for drafting MOA of section 8 Company start from 1st clause which contain name of the Company example XYZ Producer Company or ABC Producer Company etc. Second clause state to mention state in which registered office of the proposed section 8 Company will be situated example NCT of Delhi for Delhi or State of Haryana for Haryana etc.

Third clause MOA contains object of Producer Company i.e. Production, harvesting, processing, procurement, grading, pooling, handling, marketing, selling, export of *primary produce of the Members or import of goods or services for their benefit.

Clause four of MOA clearly mention that object of the company extend whole of India except J & K.

Signing of MOA & AOA: –
The MOA & AOA should be signed by Subscribers (Section7 (1) (a)), who shall add their photo, name, address, occupation in presence of at least 1 witness:

One person who will act as witness and will sign in the witness column and mention:

“I hereby witnessed that subscribers signed in my presence on Date____________, at ___________.further I have verified their identity details (Through ID) for their identification satisfy myself of their identification particular as filled in”

Below this witness must mention:

Name, Address, Description, Signature

6. Declaration by Professionals in INC- 8

Pursuant to section 7(1) (b) and rule 14 of the Companies (Incorporation) Rules, 2014:

Require to take a Declaration from Professionals Like: (CS-CA-CWA), Giving declaration that, all the requirements of Companies Act, 2013 and the rules made there-under relating to registration of the company under the Act and matters precedent or incidental thereto have been complied with. On Stamp Paper, Value of Stamp Paper as per the State stamp Act (State: Where register office of Company will be situated). In DELHI value of Stamp paper is Rs.10 /-. (ATTACHED LIST BELOW).

Professional will sign the declaration and will mention Date, Place and Membership No.

7.Affidavit from Subscribers and First Directors in INC-9

[Pursuant to section 7(1)(c) of the Companies Act, 2013 and rule 15 of the Companies (Incorporation) Rules, 2014:

Requires taking affidavit from Subscribers and First Directors of Company. Giving Declaration That,

i. I have not been convicted of any offence in connection with the promotion, formation or management of any company during the preceding five years; and

ii. I have not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the preceding five years; and

iii. All the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of my knowledge and belief.

On Stamp Paper,Value of Stamp Paper as per the State stamp Act (State: Where register office of Company will be situated). In DELHI value of Stamp paper is Rs.10 /-. (Attached List Below).

Declaration should be signed, Dated and Place.

8. Documents Require From First Director:

i. As per section 152 Rule (8) of Chapter XI - Every person before appointment furnishes to the company a consent in writing to act as such in form –DIR-2.

ii. As per Section 164 rule 14 of Chapter XI - Director will inform to company in Form DIR-8at the time of appointment and re-appointment.

iii. As per Section 184(1) rule 9 of Chapter XII - Director will disclose his/ her interest in any company, companies or bodies corporate (Including Shareholding Interest), firms or other associates of individuals , by giving a notice in writing in form MBP-1.

9. Registered Office of Company:

As per section 12(1) and rule 25 of Chapter II-Company shall have a place as its registered office in the State stated in the Memorandum on and from the 15th Day of its Incorporation. (Practically from the date of incorporation).

Verification of Registered Office:

A. Verification of Registered office filed in form INC-22.

There shall be attached to said Form, any of the following documents, namely:-

i. The Registered Document of the Title of the premises of the registered office in the name of the company; or

ii. The Notarized Copy of Lease or Rent Agreement in the name of the company along with a copy of rent paid receipt not older than one month;

iii. The Authorization from the Owner or Authorized Occupant of the Premises along with proof of ownership or occupancy authorization, to use the premises by the company as its registered office; and

iv. The Proof of Evidence of Any Utility Service likes: Telephone, Gas, Electricity, etc. depicting the address of the premises in the name of the owner or document, as the case may be, which is Not Older Than Two months.

10. Following documents are required to file with Registrar: –

Forms will be file as per sequence given below.

i. Memorandum of Association + Article of Association+ INC-8+INC-9+INC-10
(Attached in e-form- INC-7) FORMAT ATTACHED

ii. DIR-2+DIR-8
(Attached in e-form- DIR-12)

iii. Verification Documents as mention above
(Attached in e-form- INC-22)

Other Documents Requires:

i. POA, if any, executed by any subscriber authorizing a person to sign the Memorandum and Articles on his behalf.

ii. Where subscriber is body corporate, Certified True Copy (CTC) of resolution of the Board of Directors authorizing a person to sign the Memorandum and Articles on its behalf.

iii. POA in favour of person (professional) authorizing to make any correction at the time of registration.

Certificate of Incorporation

i. The Registrar of the Companies, on being satisfied that all the documents for the incorporation of a company is submitted, he is obliged to register the memorandum, the articles and other documents, if any, and issue a ‘certificate of incorporation’ within thirty days, which is a conclusive proof of its formation in terms of Part IX A.

ii. The incorporation of Producer Company is effective from the date mentioned in the certificate of registration granted by the Registrar of Company.

iii. On incorporation, a company becomes a juristic person, i.e. a person in the eyes of law. It has perpetual succession i.e. its members may come and go but the company goes on till it is wound up by following the process of law.

iv. It has a common seal, which is affixed on all the documents executed on behalf of the company in the presence of a director and be signed by the authorized signatory or signatories.

v. It is empowered to hold all properties in its own name and has its own right. It can sue others and can be sued by other and enter into contracts in its own name.

Tasks to be completed immediately after incorporation of the PC

The following tasks have to be completed immediately after incorporation:

i. Open a Bank Account with minimum two officially nominated signatories in the name of the Company.

ii. Procure PAN number from the Income Tax and TIN number from the Commercial Tax Department to carry out business. Also, the company have to register itself for Service Tax from Commercial Tax Department and VAT from Excise department.

iii. Apply for the commercial connection of Power supply to related agency/board for then office of the PC.

iv. Establishment of company office means arrangement of furniture and fixture along with a visible signage board.

Power of Attorney

All the work required to incorporate the Producer Company can be done either by the Board of Directors or alternatively, the General Body can authorize anyone of them or any other person to follow the matter with the ROC (in most cases the service of a Chartered Accounting firm or Company Secretary is acquired for the purpose). In the latter case, they have to execute a power of attorney in favour of the person, who is authorised to act on their behalf.

A power of attorney form duly stamped and executed by all the subscribers of directors have to be submitted to the ROC.

A power of attorney holder is, specifically, authorized to make corrections, as may be necessary in the Memorandum and Articles of Association and all other documents filed with the ROC and to attest the same on their behalf and to receive the Certificate of Incorporation.


Published by

CS Vikas Gupta
(Company Secretary)
Category Corporate Law   Report

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