India is an agriculture based economy. The contribution of pure agriculture activity to the Gross Value Added (GVA) is around 16.5% in the year 2019-20. Apart from this there is a huge contribution from agri based industries and trade sectors like manufacture and sale of tractors, equipment, fertilizers and pesticides etc. For this reason, agriculture is called a backbone of Indian Economy.

Since many decades’ farmers are facing the issue of not getting a fair price for the products they grow. Lack of knowledge about final markets, exploitation of middle men, lack of value additions are some of the reasons for lower prices. Government is continuously trying to remove these barriers by various measures such as formation of APMCs, Co-Operative societies, fixation of minimum prices etc. But the agriculture sector could not reach the target success. In order to make agriculture sector more competitive and strengthen the economy of the farmers, government has introduced Farmer Producer Companies

What is a Farmer Producer Organization?

A farmer producer organization is an entity formed by primary producers like Farmers, milk producers, fishermen, craftsmen etc. It is an organization established by the primary producers for the economic development of themselves.

There are many legal forms to establish a PO (Producer organization) such as:

  • Co-Operative Societies (Including Souhardha’s in Karnataka and Multistate multi-purpose co-operatives.
  • Producer companies under Companies Act, 1956
  • A non-profit organization under Company Act, 2013 (Section 8 Companies)
  • A Society registered under Societies Act, 1960
  • A charitable trust registered Indian Trust Act, 1882

Among these Farmer Producer Company and Co-operative societies are more preferred forms as they provide opportunity to share the profits in the form of dividends with members and these are globally competitive.

Differences between a co-operative Society and a Farmer Producer Company?

Farmer’s Producer Company Co-Operative Society
  • Formed under Companies Act, 1956 and governed by Company Laws
  • Formed under State Co-Operative act and governed by Co-operative Laws
  • Area of Operation covers entire nation and also foreign trade is possible
  • Area is restricted to particular state or few states
  • No Veto Power to the Government in case of voting
  • Government and Registrar has Veto power in case of voting

The major benefit of forming the FPC is its global competitiveness. A corporate structure has more reputation in the eyes of people and farmers can now enjoy the same through FPCs.

What activities can be done through Farmer Producer Companies?

Farmer producer companies will act as the bridge between the market and producers. Farmers have ability and expertise to produce but lack marketing skills and support. Thus, FPCs can be formed to:

  • Procure the inputs, equipment and machines from both local and global market and provide it to farmers at most competitive prices.
  • Production and procurement of most quality seeds to provide it to its members
  • Disseminating the market information and provide information regarding use of technology to farmers
  • Facilitating Finance to procure the inputs to the farmers
  • Purchasing the produce of the farmers and selling it both locally and to abroad
  • Branding, packing and standardizing the products of farmers to make it more competitive in the global markets.
  • Participation in the commodity markets to get higher prices to farmer’s produces
  • Imparting Education and training to the farmers about new technologies and skills

These are only illustrative lists and various other activities which may help the farmers to develop themselves can be included in the activities.

How to form a Farmer Producer Company?

A company is governed by Companies act in India. All other company except producer company is governed by new Company Act, 2013 while Producer Companies are governed by Old Companies Act, 1956 only. Section 581C of the Companies Act, 1956 provides conditions regarding incorporation of the Producer Company.

Any 10 or more individuals (natural Persons), each of them (must be) are producers or two or more producer institutions (Includes co-operative societies also) or a combination of ten or more individuals and producer institutions can form a company.

There should be minimum of 5 directors but cannot exceed 15. (in case an inter-state cooperative society has been converted into producer company, then such company can have more than 15 directors for the period of one years from the date of conversion)

Each director must have a Director’s Identification Number (DIN) so director’s need to File DIR-03 along with identity proof, address proof and Photograph documents.

The desired name of the producer company must be checked for availability in MCA by applying through Spice+ (earlier RUN service) feature. The name will generally be approved in 2-5 days if it do not contain any undesirable words as per company (Registration Offices and Fees) rules, 2014.

Each director who are signing the memorandum and articles of association must have Digital Signature to digitally sign the document. Therefore, DSC needs to be obtained

Once the name is approved following documents needs to be prepared and submitted to MCA:

> From MCA, Memorandum of Association (MoA) needs to be drafted. MoA is the document stating primary and secondary objects of forming the company. (Reference can be made to section 581B of the companies Act, 1956 which points out certain objectives of FPC.)

> Articles of Association (AoA)is to be drafted. AoA is like the by-law of the company

> Utility Bill and NOC from the landlord has to be obtained along with rent agreement.

> Director’s Consent is to be filed in the Form DIR-02 and DIR-08

After the proper verification of all the documents submitted ROC will approve the incorporation and grant Certificate of Incorporation

What is the Capital Requirement?

The minimum authorized capital of the company should be Rs. 5 lakhs whereas paid capital is Rs. 1 lakh. An authorized capital is maximum limit up to which capital can be raised as per Memorandum of Association of the company whereas paid capital is actual amount received by the company from its subscribers.

FPC has to open a bank account within 180 days of its incorporation and transfer the paid up capital amount.

Support from Government to Farmer Producer Companies:

The Union Finance Minister, in the Budget Speech for 2013-14, announced two major initiatives to support Farmer Producer Companies (FPCs) viz., support to the equity base of FPCs by providing matching equity grants and Credit Guarantee support for facilitating collateral free lending to FPCs.

♣ Equity grant Fund Scheme:

The equity grant support to eligible FPCs is provided by the SFAC on matching basis subject to a maximum of Rs 10.00 lakh per FPC, provided the FPC has a minimum shareholder membership of 50 farmers.

♣ Credit Guaranty Fund Scheme

The main objective of the Credit Guarantee Fund scheme is to provide a Credit Guarantee Cover to Eligible Lending Institutions to enable them to provide collateral free credit to FPCs by minimizing their lending risks in respect of loans not exceeding Rs. 100.00 lakhs. Maximum Guaranty cover is restricted to the extent of 85%of the eligible sanctioned credit facility or to Rs. 85 lakhs whichever is lower.

♣ Tax deductions:

With a view to encouraging enabling environment for aggregation of farmers into FPOs and take advantage of economies of scale, the Govt. in the union budget 2018-19 announced 100% tax deduction for FPOs with annual turnover of up to Rs. 100 croresfor a period of five years from financial year 2018-19

Recent amendments in APMC Act and its Impact

Prior to the amendment to APMC Act, farmers need to sell their produce through APMCs. In order to remove this barrier of trade APMC act has been amended and now farmers can sell the produce directly to the consumers or outside market. It has removed many agency commissions and also helps farmers to avoid middlemen.

Currently around 3500 FPOs are working in India and around 3000 are under incorporation. Government proposes to Incorporate 10,000 FPOs throughout nation to help farmers ensure economies of scale.

Author details e-mail shriganeshullane@gmail.com Mo. +91 9449203522

Author Bio

Qualification: CA in Practice
Company: Shriganesh Hegde & Associates
Location: Hubli, Karnataka, IN
Member Since: 12 Mar 2020 | Total Posts: 2
I am a practicing Chartered Accountant in Hubli Karnataka. View Full Profile

My Published Posts

More Under Company Law

5 Comments

  1. Devika says:

    Dear Farmers,. Many traditional recipes begin from innovation of produce. Please set a research on cooked products and taste for future packaged food. Working women value time

  2. CA Chandrakanth Rao says:

    Compliments for an informative Article.

    Some observations and questions:
    1. Article speaks of Tax Deduction – meaning tax rebate or income deductible? Need to track relevant section.
    Benefit is for 5 years starting 2018-19: meaning only 3 more years for sunset ?- turnover limit is 100 crore. Larger turnover companies what is the tax rates?
    Does this also signal the government thinking of closing down 80P umbrella after next 3 years…co operative societies may note.
    2. FPC -company law provisions and relevant section references needed to study and to understand shareholder rights like one share one vote, share transferability, etc
    3. Whether rigorous company law compliance and penal provisions applicable to FPCs?
    Niti Aayog seems to be leaning towards promoting FPCs. But how it scores above co operative model needs to be examined

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

October 2020
M T W T F S S
 1234
567891011
12131415161718
19202122232425
262728293031