A producer company is a body corporate which is governed by the provisions under chapter IXA (Section 581A to 581ZL) of Companies Act, 1956 (CA, 2013 doesn’t have any specific provision about producer companies therefore Chapter IXA of Companies Act, 1956 has not been repealed). Producer Company can only be incorporated for pursuing objects under section 581B of Companies Act, 1956.
Producer Company can be formed only by producer.
Who can be member in a Producer Company?
A person being a “producer” or a “producer institution” (whether incorporated or not) can be admitted as member of Producer Company.
Here “Producer” means any person engaged in any activity or connected with or relatable to any primary produce.
Primary produce of farmer is defined as:
- Produce of farmer arising from agriculture including animal husbandry, horticulture, floriculture, pisciculture, viticulture, forestry, forest products, re-vegetation, bee raising and farming plantation products); or
- From any other primary activity or service which promotes the interest of the farmers or consumers;
- Produce of persons engaged in handloom, handicraft and other cottage industries
- Any product resulting from any of the above activities, including by-products ofsuch products
Producer Company can pursue any of the following object
- Production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import of goods or services for their benefit:
- Provided that the Producer Company may carry on any of the activities specified in this clause either by itself or through other institution;
- Providing education on the mutual assistance principles to its Members and others;
- Processing including preserving, drying, distilling, brewing, vinting, canning and packaging of produce of its Members;
- Insurance of producers or their primary produce;
- Manufacture, sale or supply of machinery, equipment or consumables mainly to its Members;
- Generation, transmission and distribution of power, revitalisation of land and water resources, their use, conservation and communications relatable to primary produce;
- Rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its Members;
- Welfare measures or facilities for the benefit of Members as may be decided by the Board;
- Promoting techniques of mutuality and mutual assistance;
- Any other activity, ancillary or incidental to any of the activities referred to in clauses (a) to (i) or other activities which may promote the principles of mutuality and mutual assistance amongst the Members in any other manner;
- Financing of procurement, processing, marketing or other activities specified in clauses (a) to (j) which include extending of credit facilities or any other financial services to its Members.
Tax benefits available to a Producer Company
The Income Tax Act, 1961, (“the IT Act”) specifically exempts tax on agricultural income under Section 10(1). However, the exemption for such agricultural income shall sometimes vary depending upon the kind of agricultural activity carried on.
It is to be noted that though the IT Act does not per-se give any special benefits or exemptions to Producer Companies as such, but depending upon the kind of agricultural activity it carries on, certain tax benefits can be availed.
Dividend tax at the applicable rates is required to be paid by the Company at the time of patronage bonus, limited return distribution and the same will be tax free in the hands of the members.
Bonus shares will not attract any tax in the hands of the members at the time of allotment, however at the time of sale or redemption necessary provision of capital gain tax shall apply.
Over the period of time Producer Company has gained popularity due to the following:
Co-operatives have largely been state promoted, with a focus on welfare rather than to do business on commercial lines and more State government intervention in the management of Co-operatives.
- Whereas Companies Act is central legislation comparatively more liberal and minimal government control in the management of the Company.
- A Producer Company is hybrid of Company and Co-operative Society.
- It combines the goodness of a co-operative enterprise and vibrancy and efficiency of a company and accommodates the unique elements of cooperative business with a regulatory framework similar to that of a company.
Formation of Producer Company
Who can form Producer Company?
- There must be minimum 5 directors in.
- Producer company is always a private limited company.
- Producer Company will be governed by the provisions of Chapter IXA of Companies Act, 1956.
- Voting rights in producer company shall be based on a single vote for every member.
- No person, who has any business interest which is in conflict with business of the Producer Company, shall become a Member of that Company.
- Every Producer Company shall deal primarily with the produce of its active Members for carrying out any of its objects specified in this section.
- The name of the Company shall end with “Producer Company Limited” which shall be stated in the Memorandum.
- The AOA and MOA of company shall be prepared in accordance with the provision under section 581F and 581G respectively.
- One-fourth of the total membership shall constitute the quorum at a General Meeting.
- Share Capital of a producer company shall consist of equity shares only.