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Producer Company in India under the Companies Act, 2013

Puneet Taneja 
Updated on 05 November 2020

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What is a Producer Company?

"Producer Company" means a body corporate

• Registered under amended Companies Act, 1956,

• The terms of section 465 of the Companies Act, 2013, the provisions of the Part IX A of the Companies Act, 1956 shall be applicable mutatis mutandis to a producer company

• The objects of the producer company shall conform to the activities included in 581B of the Companies Act, 1956.

A Producer Company combines the goodness of a cooperative entity and the benefits of a company.

In which Section is a Producer Company registered under the Companies Act, 2013?

As per Section 465 of the Companies Act,2013:

• Introduced in 2002 by incorporating a new Part IXA (section 581A to 581ZT) into the Companies Act,1956

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Companies Act, 1956 and the Registration of Companies (Sikkim) Act,1961 (hereafter in this section referred to as the repealed enactments) shall stand repealed.

Members of a Producer Company and their Positions

A producer company is basically a body corporate registered as Producer Company under Companies Act, 2013

• In a producer company, only primary producers or producer organisations can become members

• Membership is acquired by purchase of shares in a Producer Company

• A Producer Company can act only through its members

• Members create the company

• Members can also wind up the company

• Members act through their General Meetings

What is the Minimum Share Capital for a Producer Company?

• The minimum Authorized Capital of Producer Company is Rs.5 lakh.

• The Authorized Capital of the company can be more than Rs. 5 lakh as indicated in the Memorandum of Association.

• The authorized share capital should be sufficient for carrying out the objects mentioned in the memorandum

• The authorized share capital should be realistic.

• The minimum paid-up capital for Producer Company is Rs. 1 Lakh.

Incorporation of a Producer company

The incorporation of a Producer company is the same as the incorporation of any other company under the Companies Act, 2013

Obtain Digital Signature of the Nominated Director, who will be affixing DSC on all the documents to be submitted to RoC online, on behalf of the company.

• Choose maximum 4 names for the Producer Company in order of preference.

• Apply for the name availability in Form – INC1.

• Once a name is available, a letter is received from RoC indicating it. The documents to be submitted to ROC thereafter are:

  • Articles of Association (AoA).
  • Memorandum of Association (MoA).
  • Form No. INC-22 for Registered Office.
  • Form No. DIR-12 for Directors’ Appointment.
  • Apply on-line for Directors Identification Number (DIN) for the proposed Directors.
  • INC-7 – Affidavits by subscribers to Memorandum of Association to be filed, in case, if they have signed in Hindi.
  • Power of Attorney in favour of a consultant to authorize him to make necessary changes in MoA and AoA as required by the RoC.
  • Submit the documents to RoC for Incorporation of Producer Company. m. Obtain Certificate of Commencement in INC-21.
Producer Company in India under the Companies Act, 2013

What is a Certificate of Commencement (CoC)? 

CoC is issued by the RoC as a conclusive proof of formation of a Producer Company.

A Producer Company is effective and comes into existence from the date mentioned in the Certificate of Registration granted by the RoC.

What is the legal status of a Producer Company?

• On incorporation and from the date mentioned in the Certificate of Commencement (CoC), the company becomes a person in the eyes of law.

• It has perpetual succession, meaning members may come and go, but it will go on until it is wound up by following the process of law.

• 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 signed by the authorized signatory or signatories.

• It is empowered to hold the properties in its own name and has its own right.

• It can enter into contracts in its own name.

• It can sue others and can be sued by others.

• In simple terms it has contractual capacity in the eyes of law just like any other person who has contractual capacity.

Time and Cost for Registration

• It takes between 2 months to 6 months for a registration of a Producer company.

• It is estimated that it may cost Rs. 40,000/- approximately.

• It depends on the fee charged by CA, Company Secretary and Authorized Agents etc.

Who bears the cost of registration?

• Initially the promoters of the company will bear the cost of registration of the company.

• The promoters are generally the Producer Organisation Promoting Institution (POPI) or the initial directors.

 

Who runs a Producer Company?

The company is run/governed by members/shareholders, the Board of Directors, and Office Bearers.

• Board of Directors are elected by the members.

• BoD may act collectively only through meetings.

How to become a member of a Producer Company?

• By subscribing to the MoA.

• By an agreement in writing to become a member and with an entry in the register.

Authority of the Members in the Company

Members exert authority on the company only through General Meetings. The General Meetings alone can do the following:

• Approve Budget and adopt Annual Accounts of the Company

• Approve the quantum of withheld price

• Approve the patronage bonus

• Authorize the issue of bonus shares

• Appoint an auditor

• Declare a dividend and decide on the distribution of patronage

• Amend the MoA and AoA h. Specify the conditions and limits of loans that may be given by the Board to any Director

• Approve any act or any other matter that is specifically reserved in the articles for decision for members.

What are the Voting Rights of the Members?

• In case of Producer Company comprising only of individual members or combination of individual members and producer institutions, then the voting rights shall be based on one vote per member

• In case of a Producer Company consisting only of producer institutions, then the voting rights shall be based on the participation in the business of the Producer Company in the previous year.

• The Producer Company can restrict the voting rights to only its active members provided it is authorized by its Articles of Association.

Board of Directors permitted

A producer company can have a minimum of 5 Directors and not more than 15 Directors.

Tenure of Directors

The tenure of a director appointed by AGM is minimum one year and a maximum of 5 years.

What are the advantages of a Producer Company?

• A Producer Company is a hybrid between a Private Limited Company and a Cooperative Society, thus enjoying the benefits of professional management of a Private Limited Company as well as mutual benefits derived from a Cooperative Society.

• Ownership and membership of a Producer Company is held only by “primary producers” or “Producer Institution/s” and member’s equity cannot be traded. Hence, nobody can take over the company or deprive the primary producers of their organisation.

• The clauses of Private Limited Company shall be applicable to the producer companies except the clauses specified in Producer Company Act from 581-A to 581-ZL which make it different from a normal private or limited company (refer the Producer Company Act for details). This enables a professional framework for a Producer Company.

• The liability of the members is limited to the unpaid amount of the shares held by them. Hence, the private assets of the members are safe from company losses.

• The minimum paid-up Capital being Rs. 1 Lakh and minimum authorized capital being Rs.5 lakh for a PC, it is easy to mobilise the small amount. f. Minimum number of producers required to form a PC is 10 while there is no limit for maximum number of members and the membership can be increased as per feasibility and need. This helps even 10 individuals start a Producer Company which is easy.

• There cannot be any government or private equity stake in the Producer Companies, which implies that PC cannot become a public or deemed public limited company. Hence, any Government or other corporate threat is non-existent in the professional functioning of the company.

• The area of operation for a PC is the entire country giving flexibility to expand and do business in a free and professional manner.

 

What are the limitations of a Producer company?

• A Producer Company is to be registered as per the Part IXA of Indian Companies Act 1956, Reference Section 465(1) of the Companies Act 2013. It is a must to register the company and non-registered entities are not given the benefit of the Act.

• Registration of a Producer Company is a bit difficult, generally requiring the services of a consultant.

• The registration of a Producer Company is a sometimes time-consuming process.

• The members cannot transfer their shares freely.

• Getting a professional CEO at an affordable cost is a little difficult.

• The Producer Company should follow the statutory provisions of the Indian Companies Act and should comply with the mandatory prescriptions of the Act without fail which is a little difficult for non-professionals to understand.

Also read - Incorporation of a Producer Company


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