Producer Company and Its Company registration process

The Amendment Act also includes the insertion of the provisions which enables the conversion of an existing co-operative society into a company as also the incorporation of a Producer Company. This part contains specific provisions relating to incorporation, management, meetings, share capital etc. of Producer Companies

Objects of Producer Company

A Producer company means a body corporate, having objects or activities specified in Section 581B and registered as Producers Company. Hence, the objectives for which Producer Companies may be formed are laid down in Section 581B. These include inter alia, production, marketing, export of primary produce of members, processing, packaging of produce of its members; manufacture, sale of machinery etc. mainly to its members, generation and distribution of power, insurance of producers/primary produce, rendering technical/ consultancy services, promoting mutual assistance, welfare measures and any other activity for the benefit of members.

However, in terms of Section 581B of the Companies Act, 1956, the objects of the Producer Company shall relate to all or any of the following matters, namely:

a) 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 Producers Company may carry on any of the activities specified in this clause either by itself or through other institution;

b) processing including preserving, drying, distilling, brewing, venting canning and packaging of produce of its Members;

c) Manufacture, sale or supply of machinery, equipment or consumables mainly to its Members;

d) Providing education on the mutual assistance principles to its Members and others

e) Rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its members

f) Generation, transmission and distribution of power, revitalization of land and water resources, their use, conservation and communications relatable to primary produce;

g) Insurance of producers or their primary produce;

h) Promoting techniques of mutuality and mutual assistance;

i) Welfare measures or facilities for the benefit of Members as may be decided by the Board;

j) 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;

k) Financing of procurement, processing, marketing or other activities specified in Clauses (a) to (b) which include extending of credit facilities or any other financial services to its Members.

Every Producer Company shall deal primarily with the produce of its active members for carrying out any of its specified objects. This means there is an obligation on the producer company to deal primarily with the active members in conducting its activities. The expression ‘active member has been defined in Clause (a) of Section 581A to mean a member who fulfils the quantum and period of patronage of the producer company as may be required by the articles of the producer company. The patronage means the use of services offered by the Producer Company to its members by participation in its business activities.

Formation of Producer Company and its Registration

Section 581C of the Act provides that, any ten or more individuals, each of them being a producer or two or more producer institutions or a combination of ten or more individuals and producer institutions, desirous of forming a producer company may form an incorporated company as such having its objects, specified in Section 581B as producer company under this Act after complying with the requirements and the provisions of the Act in respect of registration. Producer institution’ means a Producer Company or any other institution having only producer or producers or Producers Company or Producer Companies as its member whether incorporated or not, having any of the objects referred to in Section 581B and which agrees to make use of the services of the Producer Company or Producer Companies as provided in its articles. The Registrar on being satisfied that all requirements relating to registration and incidental matters have been complied with, shall register the memorandum, articles and other documents and issue a certificate of incorporation within 30 days of the receipt of the documents for registration. On company registration, the Producer Company shall be deemed to be a private company limited by shares without any limit on the number of members. The direct costs associated with the promotion and registration of the company may be reimbursed by the Producer Company.

Membership and voting rights of members of Producer Company

Section 581D of the Act provides that unless the membership of the Producers Company consists of a Producer institution only, every member shall have a single vote irrespective of the number of shares held. In case, where the membership consists solely of Producer Institutions, the voting rights of such Producer institutions shall be determined on their previous year’s participation in the business of the company. However, during the first year of its regulation, the voting rights in a Producers Company shall be determined on the basis of shareholding by producer institutions.

Where the membership of Producer Company consists of a combination of individuals and Producer Institutions, every member shall exercise a single vote. The Articles may however, authorize the Producer Company to restrict the voting rights to active members only.

No person, who has any business interest which conflicts with the business of Producers Company, shall become a member of that Producers Company and if subsequently a member acquires any business interest which is in conflict with the business of the Producer Company, he shall cease to be a member.

Benefits to Members

Section 581E states that, initially every member shall receive only such value of the produce or products pooled and supplied as is determined by the Board of Producers Company and the withheld price may be disbursed later in cash or in kind or by allotment of equity shares. Every such member shall be entitled to receive a limited return and may be allotted bonus shares. Withheld price’ for this purpose means part of the price due and payable for goods supplied by any member to the Producers Company, and as withheld by the Producer Company for payment on a subsequent date. Patronage bonus may be disbursed proportionately, if any, surplus remains after making provision for limited return and reserves. Patronage bonus refers to the payment by Producers Company out of its surplus income to the members in proportion to their respective patronage. The approval of Board of directors is necessary for disbursing ‘withheld price’ whereas for disbursing the ‘patronage bonus’, either in cash or by way of allotment of equity shares or both, the approval of members at the general meeting is required.

Memorandum of Association, Articles of Association

The Memorandum of Association and the Articles of Association of the Producers Company, duly signed by the subscribers are required to be presented to the Registrar of the state where the Company’s registered office is proposed to be set up. The Memorandum and Articles shall contain the disclosures as provided under the provisions of Sections 581F and 5810 respectively and are as under:

Contents of Memorandum of Producer Company

In terms of the provisions of Section 581F, the Memorandum of Association of every Producers Company shall state the following:

a) The name of the company with “Producer Company Limited as the last words of the name of such Company;

b) The State in which the registered office of the Producers Company is to situate;

c) The main objects of the Producers Company shall be one or more of the objects specified in Section 581B.

d) The names and addresses of the persons who have subscribed to the memorandum;

e) The amount of share capital with which the Producers Company is to be registered and division thereof into shares of a fixed amount;

f) The names, addresses and occupations of the subscribers being producers who shall act as the first directors in accordance with Sub-section (2) of Section 581 J;

g) That the liability of its members is limited;

h) Opposite to the subscriber’s name the number of shares each subscriber takes.

Provided that no subscriber shall take less than one share; In case the objects of the Producers Company are not confined to one State, the States to whose territories the objects extend.

Contents of Articles of Association of Producer Company

The contents, as per Section 581G, of the Articles of a Producer Company shall contain Mutual Assistance Principles and other provisions, which are as under: Mutual Assistance Principles The articles shall contain the following mutual assistance principles, namely:

a) The membership shall be voluntary and available to all eligible persons who, can participate or avail of the facilities or services of the Producers Company, and are willing to accept the duties of membership;

b) Each Member shall, save as otherwise provided in Part 1X of the Act, have only a single vote irrespective of the shareholding;

c) The Producers Company shall be administered by a Board consisting of persons elected or appointed as directors in the manner consistent with the provisions of this Part and the Board shall be accountable to the Members;

d) Save as provided in this Part, there shall be limited return on share capital;

e) The surplus arising out of the operations of the Producers Company shall be distributed in an equitable manner by providing for the development of the business of the Producers Company; providing for common facilities; and distributing amongst the Members, as may be admissible in proportion to their respective participation in the business;

f) Provision shall be made for the education of Members, employees and others, on the principles of mutuality and techniques of mutual assistance;

g) The Producers Company shall actively Co-operate with other Producer Companies (and other organizations following similar principles) at local, national or international level so as to best serve the interest of their Members and the communities it purports to serve.