frequently asked questions (FAQ's)
Farmer Producer Organisations
What is the need for Producer Company?
The main objective of PO is to ensure better income for the producers through an organization of their own. Small producers do not have the volume individually (both inputs and produce) to get the benefit of economies of scale. Besides, in agricultural marketing, there is a long chain of intermediaries who very often work non-transparently leading to the situation where the producer receives only a small part of the value that the ultimate consumer pays. Through aggregation, the primary producers can avail the benefit of economies of scale. They will also have better bargaining power vis-à-vis the bulk buyers of produce and bulk suppliers of inputs.
What is a “Farmers Producer Organisation” (FPO)?
It is one type of PO where the members are farmers. Small Farmers’ Agribusiness Consortium (SFAC) is providing support for promotion of FPOs. PO is a generic name for an organization of producers of any produce, e.g., agricultural, non-farm products, artisan products, etc
What is a Producer Organisation (PO)?
A Producer Organisation (PO) is a legal entity formed by primary producers, viz. farmers, milk producers, fishermen, weavers, rural artisans, craftsmen. A PO can be a producer company, a cooperative society or any other legal form which provides for sharing of profits/benefits among the members. In some forms like - producer companies, institutions of primary producers can also become member of PO.
What are the different legal forms of PO?
Producer Organisation can be registered under any of the following legal provisions:
a. Cooperative Societies Act/ Autonomous or Mutually Aided Cooperative Societies Act of the respective State
b. Multi-State Cooperative Society Act, 2002
c. Producer Company under Section 581(C) of Indian Companies Act, 1956, as amended in 2013
;d. Section 25 Company of Indian Companies Act, 1956, as amended as Section 8 in 2013
e. Societies registered under Society Registration Act, 1860
f. Public Trusts registered under Indian Trusts Act, 1882
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 producer company shall confirm to the activities included in 581B of the Companies Act, 1956
Who are members of a Producer Company and their position in a company?
a) In a producer company, only primary producers or producer organisations can become members
b) Membership is acquired by purchase of shares in a Producer Company
c) A Producer Company can act only through its members
d) Members create the company
e) Members can also wind up the company
f) Members act through their General Meetings
What is the minimum share capital for a producer company?
a. The minimum Authorized Capital of Producer Company is Rs.5 lakh
. b. The Authorized Capital of the company can be more than Rs. 5 lakh as indicated in the Memorandum of Association.
c. The authorized share capital should be sufficient for carrying out the objects mentioned in the memorandum.
d. The authorized share capital should be realistic.
e. The minimum paid up capital for Producer Company is Rs. 1 Lakh.
What are the preparatory arrangements for registration and incorporation of a Producer Company (PC)?
a. Identify a cluster where the PO can be formed.
b. Conduct Baseline and Feasibility Studies to ensure that a viable PO can formed in the cluster. Plan for business activities that are possible to improve the incomes.
c. Meet the villagers (primary producers) and introduce the concept of Producer Company to them.
d. Explore the need for a Producer Company (PC) with the primary producers. The primary producers should understand the benefits and feel the need for it.
e. Take the interested primary producers on an exposure visit to a functioning Producer Company and enable meaningful interaction among them.
f. Create a critical group of primary producers, who are very enthusiastic about the idea of Producer Company and empower them further with the concept and details and benefits of a producer company.
g. Use the critical group for canvassing among other eligible members about the need, urgency and benefits of a Producer Company.
h. Allow enough time to the prospective primary Producer Company members to understand the idea. Make frequent visits to them and clarify all their doubts. The objective should be that the prospective members have right understanding, and willing to participate and work together for their mutual benefit. It may take typically 3 to 6 month time for this kind of social mobilisation.
i. Have focused group meeting and motivate eligible members to become shareholders.
j. Hold a meeting with the prospective shareholders and discuss objectives and possible business ideas for the company.
k. Revise the business plan for the company taking into account the views of the prospective members.
l. Once the primary producers are willing to form a Producer Company and are ready to contribute to the share capital
i ) Identify Promoter Directors.
ii ) Prepare a draft Articles of Association (AoA).
iii ) Prepare a draft Memorandum of Association (MoA). Hire the services of a consultant to get the AoA and MOA drafted, if necessary.
iv ) Call first informal meeting of the shareholders to approve
v ) Articles of Association
- Memorandum of Association, Selection of Promoter
- Authorized capital and cost of each share / collect the capital and savings also if possible.
What are the legal formalities for formation of a Producer Company?
a) 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.
b) Chose maximum 4 names for the Producer Company in order of preference.
c) Apply for the name availability in Form – INC1.
d) Once name is available, a letter is received from RoC indicating it. The documents to be submitted to ROC thereafter are:
e) Articles of Association (AoA).
f) Memorandum of Association (MoA).
g) Form No. INC-22 for Registered Office.
h) Form No. DIR-12 for Directors’ Appointment.
i) Apply on-line for Directors Identification Number (DIN) for the proposed Directors.
j) INC-7 – Affidavits by subscribers to Memorandum of Association to be filed, in case, if they have signed in Hindi.
k) Power of Attorney in favour of a consultant to authorize him to make necessary changes in MoA and AoA as required by the RoC.
l) Submit the documents to RoC for Incorporation of Producer Company.
m) Obtain Certificate of Commencement in INC-2.
What is Digital Signature Certificate?
a) Digital Signature Certificates are equivalent to the paper certificates e.g. Driving License, Pass port etc. The certificates serve as a proof of identity of a person for a particular purpose. DSCs are used by the people for filing various important documents on-line.
b) All documents need to be signed digitally and submitted online to the RoC as per MCA21 e-Governance programme and in accordance with Information Technology Act 2000.
c) Digital Signature Certificate (DSC) is to be obtained for signing documents of the PC for submission online by the authorized person of the PC.
d) Form for obtaining Digital Signature Certificate (DSC) is available from the Certifying Agencies of Certifying Authorities.
e) After filling the form, it is to be submitted to Certifying Authorities.
f) The DSCs are issued with one or two year validity normally and can be renewed thereafter.
g) There are three classes of DSCs namely Class 1, Class 2 and Class 3. Class -2 DSC need to be used by an individual for filing various forms for Producer Company or to file an Income Tax Return.
h) The cost of obtaining Class -2 (DSC) is market driven and depends on the Certification Agency and it costs.
What is a Certifying Authority (CA) for Digital Signature Certificate and list the CAs?
Certificates for electronic authentication of users. At present the following organisations are authorized as Certifying Authorities under CCA, Government of India.
- NIC (For Government Departments / Undertakings only) (http://nicca.nic.in)
- (n)Code Solutions CA(GNFC) (www.ncodesolutions.com)
- Safescript (www.safescrypt.com)
- TCS (www.tcs-ca.tcs.co.in)
- MTNL (www.mtnltrustline.com)
- Customs & Central Exercise (www.icert.gov.in)
- e-Mudhra (www.e-mudhra.com)
What is Director Identification Number (DIN)?
a) Ministry of Company Affairs (MCA) maintains the details of all the Directors of all the companies with a unique Identification Number which is called Director Identification Number (DIN).
b) Every director needs to have a DIN form MCA. DIN form is available on the website of MCA. Before formation of the PC all the Directors / Chairman should have DIN.
c) If any Director got a DIN, the same need not be obtained afresh.
d) MCA on online application provides DIN at a cost of Rs. 1000/- against identity proof. For identity only PAN Card, Voter ID Card, Passport or Driving License number is accepted.
What is Memorandum of Association (MoA)?
a) MoA is a document that indicates what activities the company can undertake.
b) MoA needs to be prepared carefully to cover all the activities planned for the present and future of the Producer Company in a broad manner.
c) MoA should be prepared and printed on both sides of the paper.
d) It is to be subscribed/signed by the requisite number of subscribers/promoters in his/her own hand along with details like father’s name, occupation, address and the number of shares subscribed for, by them.
e) MoA needs to be dated after the date of stamping of the Articles of Association (AoA).
What is Articles of Association (AoA)?
a) AoA is a document that specifies the rules for a company's operations.
b) It defines the company's purpose and lays out how tasks are to be accomplished within the organization.
c) It includes the process for appointing Directors and how financial records are handled.
d) AoA should be prepared and printed on both sides of the paper.
e) It is to be subscribed/signed by the requisite number of subscribers/promoters in his/her own hand along with details like father’s name, occupation, address and the number of shares subscribed for.
What are the documents to be submitted to the Registrar of Companies (RoC) for incorporation of a Producer Company?
1. Copy of the letter of RoC confirming the availability of name.
2. MoA and AoA duly stamped and signed.
3. Form INC-22 indicating the Registered Office of the company with full address.
4. Form DIR-12 in duplicate with details about the directors of the company.
5. Form INC-7 on stamp paper declaring compliance with all and incidental matters regarding formation of companies.
6. Consent of each of the Directors along with form DIR-12.
7. An affidavit indicating that MoA is fully understood by the subscribers/signees, if they sign in Hindi.
8. Power of Attorney to the agent who is dealing with the RoC to make corrections in MoA and AoA, if necessary, to the satisfaction of the RoC.
What is Certificate of Commencement (CoC)?
a) CoC is issued by the RoC as a conclusive proof of formation of a Producer Company.
b) 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?
a. On incorporation and from the date mentioned in the Certificate of Commencement (CoC), the company becomes a person in the eyes of law.
b. 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.
c. 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.
d. It is empowered to hold the properties in its own name and has its own right.
e. It can enter into contracts in its own name.
f. It can sue others and can be sued by others.
g. In simple terms it has contractual capacity in the eyes of law just like any other person who has contractual capacity.
How much time is taken for registration of a Producer Company?
It may take anything between 2 to 6 months
How much it costs for 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 will bear the cost of the registration of a Producer Company?
a) Initially the promoters of the company will bear the cost of registration of the company.
b) The promoters are generally the RI or the initial directors.
Whether Producer Company reimburses the cost of registration to the promoters?
The cost of registration may be reimbursed to the promoters duly approved by its general body in its first meeting with a resolution passed to that effect.
Who will run a Producer Company?
The company is run / governed by members/shareholders, Board of Directors and Office bearers.
Who are Board of Directors (BoD)?
a. Board of Directors are elected by the members.
b. BoD may act collectively only through meetings.
Who are Office Bearers?
a) An office bearer is a person who is selected / appointed to look after the day-to-day affairs of the Producer Company.
b) The office bearers include Chief Executive officer (CEO), Accountant, godown keeper, etc.
c) The company pays salaries to all the office bearers.
How to become a member of a Producer Company?
a. By subscribing to the MoA.
b. By an agreement in writing to become a member and with an entry in the register.
What is the authority of the members on the company?
Members exert authority on the company only through General Meetings. The General Meetings alone can do the following:
a. Approve Budget and adopt Annual Accounts of the Company
b. Approve the quantum of withheld price
c. Approve the patronage bonus
d. Authorize the issue of bonus shares
e. Appoint an auditor
f. Declare a dividend and decide on the distribution of patronage
g. Amend the MoA and AoA
h. Specify the conditions and limits of loans that may be given by the Board to any Director
i. Approve any act or any other matter that is specifically reserved in the articles for decision for members
What are the rights of the members?
a. to transfer one’s shares
b. to vote on resolutions at meetings of the Company
c. to requisition an extraordinary general meeting of the Company or to make a joint requisitions
d. to receive notice of a general meeting; to attend and speak in a general meeting
e. to move amendments to resolutions proposed at meetings, in case the member is a corporate body, to appoint a representative to attend and vote at general meetings on its behalf
f. to require the company to circulate its resolutions
g. to enjoy the profits of the company in the form of dividends
h. to elect directors and to participate in the management of the company through them
i. to apply to the Company Law Board in case of oppression
j. to apply to the Company Law Board in case of mismanagement
k. to apply to the court for winding up of the company
l. to share the surplus on winding up
m. to have a share certificate issued to him/her in respect of his/her shares
What are the voting rights of a member?
a. 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.
b. In case of 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.
c. The Producer Company can restrict the voting rights to only its active members provided it is authorized by its Articles of Association.
How a member is ceased of his/her membership?
a. By completely transferring his/her shares
b. By forfeiting his/her shares
c. By a valid surrender
d. By death
e. By the company selling his shares in exercise of its right under its Articles of Association
f. By order of a court or any other competent authority attaching and selling the shares, in satisfaction of a decree or claim
g. By the official assignee disclaiming his shares, on his adjudication as an insolvent
h. By rescission of contract of membership, on the grounds of misrepresentation or mistake.
How many Board of Directors are permitted in a Producer Company?
A producer company can have a minimum of 5 Directors and not more than 15 Directors.
What are the powers and functions of the Board?
a. The Board is responsible for formulating, supervising and monitoring the performance of the Producer Company.
b. It should not act on the areas reserved for General Body.
c. It should not exercise executive powers.
What are the matters, which the Board generally deals with?
a. Determination of the dividend payable;
b. Determination of the quantum of withheld price and recommended patronage to be approved at General Body Meeting;
c. Admission of new members;
d. Pursue and formulate the organizational policy, objectives, establish long term and annual objectives, and approve corporate strategies and financial plans;
e. Appointment of Chief Executive Officer (CEO) and other officers, as may be specified in the AoA. Control CEO and other officers by exercising superintendence and direction;
f. To sanction any loan or advance to members, who are not directors or their relatives, in the course of its business;
g. Ensure proper books are maintained;
h. Acquire or dispose property of the company in the day-to-day affairs of the business;
i. Investment of the funds in the day to day business;
j. Ensure annual accounts are placed before the Annual General Meeting (AGM) with the auditor’s report.
Who appoints the Board of Directors?
a. The names of the first Board of Directors are indicated in the MoA
b. The AGM elects the directors in the first meeting and thereafter whenever required
What is the period of tenure for the Directors?
The tenure of a director appointed by AGM is minimum one year and a maximum of 5 years.
Who is an expert Director?
a. Any person who is having expert knowledge in running the Producer Company can be co-opted by the Board as an expert director.
b. Expert directors will not have right to vote in the election of Chairman.
c. Expert directors should not exceed one fifth of the total number of directors.
d. Expert director can become a Chairman.
Who is an alternate Director?
If a regular director is out of the State in which the meetings are held, for a period of 3 months or more, another person can be appointed as director in his place, who is called an alternate director. The tenure of the alternate director must be not less than 3 months. The moment the original director returns, the alternate Director ceases to be the Director.
How the Directors are remunerated?
Generally the Directors are reimbursed the cash expenditure incurred by them for attending the board meetings like expenditure on travel, lodging and food. However, if any Director, spends more time for the company, provisions may be made for providing fixed allowances like communication allowance, fixed daily allowance etc.
What should be the qualification of a Director?
Only individuals can be directors of a company. No educational qualification or minimum holding of shares is required. Hence any individual can become a Director as per Section 465(1) of Companies Act, 2013.
What is the procedure for removing directors?
a) The shareholder directors of the company can be removed before the tenure by passing an ordinary resolution at a general body meeting.
b) The Director ceases his post on completion of the tenure which ranges from 1 to 5 years.
What is the procedure for resignation of Director/s?
a) Any Director can resign from his post by giving intimation to the company in a manner indicated in the AoA.
b) If AoA do not indicate any procedure for resignation, then a Director can resign by giving reasonable notice. The resignation is deemed as accepted the moment the notice is given.
c) In case of Chief Executive Officer or Managing Director or whole-time Director, mere notice of resignation will not be deemed as resignation. Their resignation will be governed by the terms and conditions of the appointment. In this case acceptance of the resignation is required to get relieved of their duties.
What is the accountability of a Director in a Producer Company?
a) A director or an officer who fails to provide information to a member or a person, for whom he is required to provide information about the Producer Company, the Director is liable for imprisonment for a term extending to 6 months and with a fine equivalent to 5% of turnover of the company in the previous year
b) If there is a failure for convening an Annual General Meeting or other general meetings, the Director shall be punishable with a fine extended up to Rs. 1 lakh. In case the default continues, an additional fine extended up to Rs. 10,000/- per day.
Who appoints the CEO and what are his/her functions?
a. A full time CEO is appointed by the Board of Directors as per AoA
b. The CEO is to be other than a member
c. The CEO is accountable to both the Board of Directors and members
What are the functions of a CEO?
The functions of a CEO include the following:
a) Do administrative acts of routine nature including managing the day-to-day affairs of the Company;
b) operate bank accounts or authorize any person, subject to the general or special approval of the Board; make arrangements for safe custody of cash and other assets of the Company;
c) sign business related documents as may be ‘authorized by the Board’ for and on behalf of the Producer Company;
d) maintain proper books of account, prepare annual accounts, place the audited accounts before the Board and in the Annual General Meeting of the Members;
e) furnish the members with periodic information to appraise them of the operation and functions of the Company;
f) make appointments to posts in accordance with the powers delegated to him by the Board;
g) assist the Board in the formation of goals, objectives, strategies, plans and policies;
h) advise the Board with respect to legal and regulatory matters concerning the proposed and ongoing activities and take necessary action in respect thereof;
i) exercise the powers as may be necessary in the ordinary course of business;
j) discharge such other functions, and exercise such other powers, as may be delegated by the Board;
k) to provide timely information to the Members and Board of Directors for scheduled company meetings or emergency or short notice meetings.
What is the minimum qualification for appointment of a CEO in a producer company?
a. As indicated in AoA, the qualifications, experience and the terms and conditions of service of the Chief Executive shall be such as may be determined by the Board.
b. The Chief Executive Officer (CEO) of a Producer Company shall be a full time employee of the company.
c. The CEO shall be appointed by the Board of Directors of the company amongst persons other than members.
d. The CEO shall be ex-officio director of the Board and such director shall not retire by rotation.
What are the advantages of a Producer Company?
a) 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.
b) 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.
c) 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.
d) 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.
e) The minimum paid-up Capital being Rs. 1 Lakh and minimum authorized capital being Rs.5 lakh for a PC, it 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.
g) 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 professional functioning of the company.
h) The area of operation for a PC is the entire country giving flexibility to expand and do business in a free and professional manner.
Who provides support for promotion of Producer Company?
SFAC, NABARD, Government Departments, Corporates and Domestic & International Aid Agencies provide financial and/or technical support to the Producer Organisation Promoting Institution (POPI) for promotion and hand-holding of the PO. Each agency has its own criteria for selecting the project/promoting institution to support.
Who can become a Resource Institution (RI)?
An NGO, firm, a bank branch, a Government Department, a Cooperative Society or any Association or Federation can become a RI. Basically, the RI needs to be a legal entity so that it can enter into legally valid contracts with other institutions including the PO which they seek to promote. Support is available for RI from SFAC for meeting part of the recurring cost incurred for promotion of the PO based on individual project considerations. The empanelment of RI is done as per policy process guidelines for FPOs issued by Ministry of Agriculture and Farmers Welfare, Government of India.
What are the roles and responsibilities of Resource Institution (RI)?
The primary responsibility of the RI is to see that the PO reaches sustainable level of business and the staff of the FPO acquire technical and managerial capability to run the business successfully when the RI withdraws its support. The principal role of the RI is, therefore, to build the capabilities of the Staff and Management of the PO through training and continuous hand-holding.
The broad responsibilities of a RI are indicated below:
a) Cluster identification
b) Diagnostic and Feasibility Studies
c) Business Planning
d) Mobilisation of Producers and Registration/Incorporation of PO
e) Resource Mobilisation
f) Development of Management Systems and Procedures
g) Business Operations
h) Assessment and Audit
What are the taxation systems / laws governing the POs? Whether any tax benefit is available to Producer Company?
Currently, Government of India has allowed hundred per cent deduction to these companies registered as Farmer Producer Companies and having annual turnover up to Rs 100 crore in respect of their profit derived from such activities for a period of five years from financial year 2018-19. But immediately after incorporation, they have to procure PAN number from the Income Tax Department and GST number from the Commercial Tax Department to carry out business.
What support is available for Producer Company from SFAC?
Mainly two types of support specifically is available to the POs from the Small Farmers Agribusiness Consortium (SFAC). Details are available at www.sfacindia.com
a) SFAC operates a Credit Guarantee Fund to mitigate credit risks of financial institutions which lend to the Farmers Producer Companies (registered as Producer Company under Part IX-A of Companies Act) without collateral. This helps the FPCs (one form of PO) to access credit from mainstream financial institutions for establishing and operating businesses.
b) SFAC provides matching equity grant up to Rs. 15 lakh to the FPCs (registered as Producer Company under Part IX-A of Companies Act) to strengthen the equity base and enhance borrowing power of company, and thus enables the entities to access bank finance.