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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. Under Companies Act 1956, a Producer Company can be formed by 10 individuals (or more) or 2 institutions (or more) or by a combination of both (10 individuals and 2 institutions) having their business objective as one of the following:
- Procurement
- Production
- Harvesting
- Grading
- Pooling
- Handling
- Marketing
- Selling, or
- Export
of the primary produce of the Members or import of goods or services for their benefit. 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.
Authorized activities of Producer companies
- Processing (processing also includes, preserving, brewing, vinting, 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) in order to promote the mutual assistance amongst the producer members and the lines of principles of mutuality
Pre-Incorporation Checklist
- Any 10 or more producers (Individuals) can join together to form a production company but there is no upper limit on the number of members
- Or, any 2 or more producer institutions can form a producer company.
- A minimum capital of Rs. 500,000 is required to incorporate a producer company.
- There should be minimum 5 directors (maximum of 15) in a producer company
- It can never be converted into a public company however it can be converted into a multi-state co-operative society.
Registration Procedure
The process of registering a Producer Company is similar to that of a Private Limited Company. Digital Signature (DSC) and Director Identification Number (DIN) must be obtained first for the proposed first Directors of the company. Once, Digital Signature (DSC) and Director Identification Number (DIN) are obtained, an application for name reservation is to be filed with the relevant Registrar of Companies (ROC). There is a requirement under the Act that the name of a producer company must end with the words “Producer Limited Company”. Once, the suggested name is approved by the Registrar of Companies (ROC), an application for incorporation is to be filed in the prescribed format for the incorporation of the Producer Company. Once the Registrar is satisfied with the application and the required documents filed for incorporation of Producer Company, he will approve the same and issue Certificate of Incorporation.
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Procedure and Documentation required to incorporate a Producer Company
Then the name of the production company is to be finalized. For that, Form INC – 1 to the Registrar of Companies (ROC) is to be filed by giving 6 names in the order of preference along with the significance of the names. The name shall have the words PRODUCER COMPANY at the end
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Benefits for Producer Companies
The members of the producer company initially will receive the value for the produce pooled and supplied as determined by the directors. This amount will be given out later in the form of cash/ kind/ equity shares.
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Loans and Investments
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
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Tax Benefit (Taxability of Producer Company)
The Income Tax Act, 1961 under section 10(1) exempts the agricultural income. However, the exemption provided under section 10(1) for the agricultural income sometimes vary on the basis of the agricultural activity carried out. The Income Tax Act does not specify any specific tax benefit which essentially provides special tax benefits or exemptions to producer companies by its definition. But subject to the agricultural activity carried out by the producer company, certain tax benefits and exemption can be availed. For example, income derived from selling the grown green tea leaves is an agricultural income under the Income Tax Act and it is 100 % tax-free. However, if the tea leaves are further processed for the manufacturing of tea, only 60% of such income will be considered as agricultural income and 40% of such income will be taxed. Thus, it is apparent that the tax benefit and exemption to a producer company is totally depending upon the activity it carries on.
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Documents To Be Submitted
- Step 1: PAN Card/ ID Proof of the Partners.
- Step 2: Address Proof of the partners.
- Step 3: Residence Proof of Partners.
- Step 4: Photograph
- Step 5: Passport (in case of Foreign Nationals/ NRIs)
