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Producer Company

The economy of India is an agriculture-centric economy. But, the primary producers and farmers have had a long struggle in India. In the new era where India inc. is flourishing, agriculture is struggling to catch up with it. In the light of recent legislature development, it has become our duty as finance & legal professionals to make sure that our farmers have the knowledge and power to negotiate with the Big Corporate players entering the Agriculture sector. In such scenario, concept of Producer Company has become much more important. In this article I have tried to explain certain basic features of Producer Company.

What is a Producer Company?

A producer company can be defined as a legally recognized body of farmers/ agriculturists with the aim to improve the standard of their living, and ensure a good status of their available support, incomes and profitability. A Producer Company can be formed by 10 individuals or 2 institutions or by a combination. The main objective of the producer company is to facilitate the formation of co-operative business as companies and to make it possible to convert existing co-operative business into companies. In terms of Sec 465 of the Companies Act, 2013 the provisions of Part IX-A of the Companies Act, 1956 shall be applicable "mutatis mutandis" to a produce company. The objects of Producer Company shall conform to the activities included sec 581B of Companies Act, 1956

Basics of Producer Company

Authorized activities of Producer companies

The Producer Company is required to deal with the produce of its members and is authorized to carry on any of the following activities:

  • Processing (processing also includes, preserving, brewing, venting,  drying, distilling, canning and packaging) of the produce of its members;
  • Manufacture, sale or supply of equipment, machinery or consumables to its producer members;
  • To provide education on the mutual assistance principles to the producer members of the producer company and others;
  • To render consultancy services, technical services, training, R&D and all other required activities for promoting the interests of producer members;
  • Generation, transmission and distribution of power, conservation and communication relatable to primary produce, revitalisation of land and water resources,
  • Insurance of the primary produce and its producer;
  • To promote the techniques of mutuality and mutual assistance;
  • The welfare of members as may be decided by the Board;
  • Financing of procurement, marketing, processing or other activities such as extending of credit facilities or any other financial assistance to its producer members.
  • Any other activity (ancillary or incidental to the main objectives of the producer company)

Benefits for Producer Companies

The following are the benefits enjoyed by a Producer Company:-

  • It can have a single registration and operate throughout India including exporting business in contrast to co-operatives.
  • No political intervention by the government / local authorities, which will enable the entity to run autonomously.
  • The Producer Company can have an unlimited count of shareholder members unlike any other company or form of business but with a condition that the member should only and only be a primary producer / farmer.
  • It can enter into JVs, alliances and also have subsidiaries, which is not the case for a society.
  • It can distribute its earnings back to members (unlike NPO /Section 8 companies no requirement to plough back the profits) in the proportion of contribution and not necessarily as per the shareholding pattern.
  • Every member has one vote irrespective of number of shares held by him which is the essence of co-operative society.
  • It can be run by professionals by designating them on board which is not the case for a society.

Special Features

As mentioned above the Producer Company consist of individuals who are primary producers, and thus, are in need of financial support from time to time. Hence, a special provision under the Companies Acts, 1956 was passed for giving loans to producer members. A Producer Company can provide financial assistance to its members through:-

  • Credit facility: A Producer Company can provide to any of its members for a period not exceeding six months.
  • Loans and advances: These are provided to the producer member against security, repayable within a period not exceeding seven years from the date of disbursement of such loans or advances.
  • NABARD Loan: NABARD provides support and financial assistance to meet the needs of Producer Companies. In 2011, NABARD set up a Rs. 50 crore Producer Organization Development Fund (PODF), out of its operating surplus.

Tax Benefit (Taxability of Producer Company)

To overcome the undue hardship and the bias in the taxation, the Government in the Union Budget 2018-19, had provided a tax benefit to the Producer Company. It is, therefore, been proposed to extend the 100% tax deduction to Producer Company having a total turnover up to Rs. 100 crores. In other words, any Producer company making a turnover of up to 100 Crores and earning profit out of the same, need not pay any corporate tax, 100% tax deduction had been allowed by proposing an extension to section 80P by inserting section 80PA to the Act. The benefit shall be available till Assessment Year 2024-25. The benefit will be available in respect of the following activities of the Producer Companies:

  • the marketing of agricultural produce grown by the members; or
  • the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to the members; or
  • the processing of the agricultural produce of the members.

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Category Corporate Law, Other Articles by - Devershi Gupta