Sagar Ruparelia

Sagar RupareliaNeed for Producers Companies in India

With the constant presence of upcoming multinationals in all production sectors such as agriculture and marketing there was a need for small time production companies to operate as a cooperative under an umbrella body such as the Ministry of Corporate affairs.

Thus the government of India incorporated several reforms and policies to meet the challenges by incorporating a new section 9A (sec 581A to 581ZT) into the companies Act of 1956 which were based on observations and recommendations made by a core committee led by noted economies YK Alagh.

Recommendations of the Committee for Implementation of Producer Companies

The core committee was formed to chalk out a plan for the implementation of the act enabling producer companies to commence functionality. The main instruction for the committee was:

1. To develop a framework of legislative measures enabling cooperatives to be incorporated as companies. Existing cooperatives would be granted the option of being converted into full fledged companies.

2. To ensure that the proposed legislation incorporated elements of cooperative business similar to a regulatory framework that existed for companies.

The concept of producer companies in India were defined as those companies having their main objects of business in areas where transactions and activities were mainly carried out between members. Thus the areas and activities defined were as follows:

Manufacturing and production sectors

  • Production And Harvesting
  • Procurement, Grading, Pooling
  • Handling, Marketing, Selling
  • Exporting Primary Produce
  • Processing, Preserving
  • Dying, Distilling, Brewing
  • Venting, Canning And Packaging
  • Manufacturing
  • Sale Or Supply Of Machinery ,Equipment

Education And Service Sectors

In services area the various businesses were defined as technical and consultancy services. Training, R &D, transmission and distribution of power, revitalization and conservation of land &water resources, communications and welfare that sought to promote insure and produce benefits for members and mutual assistance to members. Such activities would be carried out at the discretion of board of governing members and would also apply to any additional or ancillary activities incidental to the above mentioned sectors.

The members of the producer company would be referred to as producers, Producer Company or companies or institutions carrying out the object of a producer companies in India.

Important Rules & Considerations to Be Noted While Registering a Producer Company

  • Should be registered by a minimum of 10 producer individuals or minimum of 2 producer institutions
  • Registration of a producer company converts it to the nature of a corporate
  • Producer Companies are not allowed to become public limited Companies

A Producer Company upon registration will be regarded as a Private Limited company but will not be limited to the restriction of members as in the case of regular Private limited companies.

  • Promoters of a Producer company will be allowed reimbursement of all promotional costs incurred for registration and promotion of the company. This includes all legal fees, registration and printing of memorandum of articles etc.
  • Members of producer companies in India are allowed monetary benefits restricted to the value of pooled resources of products and production whose values shall be determined by the board of the company. Withheld pricing will be disbursed at later dates in either cash or kind through allotment of equity shares whose amount shall remain in proportion or equal to the quantity of production in a single financial year. Such conditions remain with the discretion of the board.
  • In the event of surplus production or monetary surplus, such amounts will be distributed among members as bonuses taking in account every members level of participation in the activities of the producer company. Bonuses will be converted to cash or equity shares as determined by the board at appointed AGMs.
  • In the event of the producer company comprised of individuals and institutions, the decisions will result through individual votes of every member.
  • In event of producer Institutions making up the producer company, the voting rights of institutions will depend on levels of participation of the business of the institution in question. Within the first year of incorporation however, the voting rights depend on the amount of equity shares held by each member institution.
  • Those persons in conflict of interest with members or nature of business of the producer company are restricted from membership
  • Existing members acquiring benefits and gains from external sources in direct conflict with the producer company will be removed from membership.
  • Every Producer Company shall have a minimum of 5 and a maximum of 15 directors however places where interstate cooperatives registering as a producer company is concerned; the limit of 15 directors can be relaxed for a period of 1 year.

Such is the nature of Producer Companies in India that provide ample opportunities for small time businesses to gear up and meet the challenges of everyday business in the area of production and services. The best way to incorporate or start a producer company is to hire external consultation and services which will help you do the needful in all legal and promotional procedures.

(Author runs runs MyEfilings, which provides online professional services like Company Registration, Tax Registrations, and other Secretarial, Legal and Accounting services and can be reached at [email protected])

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June 2021