PRODUCER COMPANY
A producer company is a
company incorporated under Companies Act 2013 (formerly the Companies Act 1956)
and shall carry on following activities as mentioned in section 581B of
Companies Act 1956:
·Production, harvesting, procurement, grading,
pooling, handling, marketing, selling, export of primary produce of the Members
or import goods for their benefit.
·Processing including preserving, drying,
distilling, brewing, venting, canning and packaging of produce of its members.
·Manufacture, sale or supply of
machinery, equipment or consumables mainly to its Members.
·Providing education on the mutual
assistance principles to its Members and others Rendering technical services,
consultancy services, training, research and development and all other
activities for the promotion of interest of its members.
·Generation, transmission and
distribution of power, revitalisation of land and water resources, their use,
conservation and communications relatable to primary produce.
·Insurance of producers or their primary
produce.
·Promoting techniques of mutuality and
mutual assistance.
·Welfare measures or facilities for the
benefit of Members as may be decided by the Board.
·Any other activity, ancillary or
incidental to any of the activities referred to in above clauses 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 above clauses which include
extending credit facilities or any other financial services to its members.
Producer Companies as
an Institution have been conceptualised and structured, taking into the
considerations of farmers, agriculturists (termed as ‘Producers’), with a view
that the business activities relating to agriculture, be channelized and governed
in a formal manner. Sections 581A to 581 ZT of the Companies Act 1956 cover the
provisions of producer companies. Section 581 of Companies Act 1956- Provisions
of Part IX A of the Companies Act 1956 shall be applicable mutatis mutandis to
producer companies in the manner as if the Companies Act 1956 has not been
repealed.
The Policy makers
realised that, inspite of India being an Agrarian Economy since ages, formalisation
and good governance have not even touched the Agricultural Sector. The
challenges faced by primary producers, farmers due to their limited asset and
capital base, climate issues, mobilisation of resources, issues relating to
agricultural labour, policy changes, technological advancements, transparency,
governance and systems have been taken into consideration here by the policy
makers.
Silent Condition for Producer
Companies:
i.
Only persons engaged in an activity connected with, or related to, primary
produce can participate in the ownership.
ii.
The members have necessarily to be primary producers.
iii.
Termed as “Companies with Limited Liability” and the liability of the members
will be limited to the amount, if any, unpaid on the shares.
iv.
Name of the company shall end with the words “Producer Company Limited“.
v.
On registration, the producer company shall become as if it is a Private
Limited Company for the purpose of application of law and administration of the
company.
vi.
However, it shall comply with the specific provisions of part IXA.
vii.
The limit of maximum number of members is not applicable to these Companies.
Share Capital:
i.
Share capital of a Producer Company shall consist of equity shares only.
ii.
Members’ equity cannot be publicly traded but only transferred.
iii.
Voting
a.
Only of individuals, then voting rights shall be based on a single vote for
every member.
b.
Only of producer institutions, then voting rights on the basis of their
participation.
c.
Combination of both individuals and producer institutions then voting rights
shall be based on a single vote for every member.
Director:
Every
producer company is to have
i.
At least 5 and not more than 15
directors.
ii.
A full time chief executive should
(CEO) be appointed by the board and
iii.
shall be entrusted with substantial powers of management as the board may
determine.
If
any director resigns from his post the election shall be conducted within 90
days from the date of resignation of such director. The Director shall hold his office for a
period not less than 1 year but not more than 5 years as may be specified in
the articles. Every director shall be
eligible for reappointment. The Directors
of the Board are elected by the members in the Annual General Meeting. The Board may co-opt one or more expert
directors or additional directors not exceeding one fifth of the total number
of directors. The expert director and
additional director shall hold the post for the period as prescribed in the
articles.
Reserves:
i.
Every producer company has to maintain a general reserve in every financial
year.
ii.
Where there are no sufficient funds in any year for such transfer,
iii.
The shortfall has to be made up by members’ contribution in proportion to their
patronage in the business.
Members’ benefits:
i.
Members will initially receive only such value for the produce or products
pooled and supplied as the directors may determine.
ii.
The withheld amount may be disbursed later either in cash or in kind or by
allotment of equity shares.
iii.
Members will be eligible to receive bonus shares.
iv.
An interesting provision is for the distribution of patronage bonus [2](akin to
dividend) after the annual accounts is approved — patronage bonus means payment
out of surplus income to members in proportion to their respective patronage
(not shareholding).
Audit:
i.
Producer Companies shall carry out an internal audit of its accounts, at
regular intervals in accordance with its articles of association and such an
audit shall be carried on by a Chartered Accountant.
ii.
The auditor shall make an annual audit report to the members of the company on
the accounts examined by him.
An
unnecessary stipulation is that “without prejudice to the concerned sections in
the Act,” the auditors of producer companies have to specially report on some
additional items such as debts due and bad debts, verification of cash balances
and securities, details of assets and liabilities, loans extended to directors
and details of donations and subscriptions.
Striking of name:
The
Registrar shall strike the name of the Producer Company if the company fails to
commence its business within one year from the date of registration or ceases
it transactions after giving a notice to the company. Any Member of the Producer Company is
aggrieved against such order.
KEY POINTS FOR PRODUCER COMPANY:
i. The
members have necessarily to be primary producers.
ii. Name of the company shall end with the
words “Producer Company Limited”.
iii. The limit of maximum number of members is
not applicable to these Companies.
iv. On registration, the producer company
shall become as if it is a Private Limited Company for the purpose of
application of law and administration of the company.
v. Minimum No. of 10 member (individual).
vi. Share capital of a Producer Company shall
consist of equity shares only.
vii. Minimum 5 and not more than 15 directors.
viii. Producer Company can carry only activity
prescribed under the Act.
ix. Only of individuals, then voting rights
shall be based on a single vote for every member.
x. A full time chief executive should (CEO) be
appointed by the board.
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.
Procedure
and Documentation required to incorporate a Producer Company
a. The first step is to obtain a Digital Signature Certificate (DSC) by all the directors.
Documents required to obtain a DSC are:
·PAN Card of the Director
·Aadhaar Card of the Director
·Photo
·Email Id
·Contact Number
b. After obtaining the
DSC, the next step is to obtain the Director Identification Number (DIN) by
filing form DIR – 3 along with a self-attested Identity proof, address proof,
and a photo
c. 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
d. After the name is
approved by the ROC, the following documents are to be prepared:
·The Memorandum of Association is to be
drafted by incorporating all the objects that the company intends to follow
·The Articles of Association is to be
drafted containing all the by-laws of the company
·A declaration by a professional has to
be drafted in the format of form INC – 8
·An affidavit has to be signed by all the
subscribers of the proposed company declaring their legal competency to act as
the subscribers
·A utility bill and a NOC have to be
taken from the owner whose address is to be used as the registered office of
the company. If it is not owned, a lease agreement will be attached to the form
·The directors will give their consent to
act in the Form DIR – 2 and details in DIR – 8
e. All the drafted
documents will be attached to Form INC – 7, INC – 22 and DIR – 12 and uploaded
to the ROC website. On proper verification, the ROC will issue a Certificate of
Incorporation and the company can start its business operations.
This form of
establishment promotes the primary producer who is in a low-income group to
optimize their income with collective bargaining and by selling the products
directly to consumers.
FAQ
1. Management of
Producer Companies.
Principally, a Producer
Company being a Company, a body corporate in itself, the aspect of management
and ownership is differentiated by the statute itself.The Management of the
Producer Company is vested in the Board of Directors and the ownership of the Company
is vested in the Shareholders/Members. The Board of Directors in a Producer
Company manage and operate the day to day affairs of the Company. An additional
post of a Chief Executive is provided for as a linkage in the said Producer
Company. A Producer Company shall have the liability of its Members limited and
can neither be limited by guarantee with or without share capital nor unlimited
liability companies.
2. How is a director
appointed in a Producer Company?
As per Section 581P of
the Companies Act, 1956, save as provided in section 581N, the Members who sign
the memorandum and the articles may designate therein the Board of directors
(not less than five) who shall govern the affairs of the Producer Company until
the directors are elected in accordance with the provisions of this section.
The election of
directors shall be conducted within a period of ninety days of the registration
of the Producer Company.
Above provision needs
clarification and needs to be aligned with existing provisions of Chapter of
“Appointment and Disqualification of Directors” under Companies Act 2013.
Reasons – As per
current procedure of formation of Companies, First Directors are already
mentioned in Articles of Association and also Form DIR – 12 with consent to act
as Directors in Form DIR – 2 is filled with Registrar at the time of Incorporation
and thus the First Directors are already appointed.
There is no point in
taking elections within 90 days of the Registration of Company for Appointment
of Directors.
3. What are the
circumstances for vacation of office by director?
As per section 581Q of
the Companies Act, 1956, the office of director of Producer Company shall
become vacant if:
(a) he is convicted by
a Court of any offence involving moral turpitude and sentenced in respect
thereof to imprisonment for not less than six months.
(b) the Producer
Company in which he is director has made default in repayment of any advances
or loans taken from any company or institution or any other person and such
default continues for ninety days.
(c) he has made a
default in repayment of any advances or loans taken from the Producer Company
in which he is a director.
(d) the Producer Company,
in which he is a director.
·has not filed the annual accounts and annual
return for any continuous three financial years commencing on or after the 1st
day of April, 2002 ; or
·has failed to, repay its deposit or
withheld price or patronage bonus or interest thereon on due date, or pay
dividend and such failure continues for one year or more
(e) default is made in
holding election for the office of director, in the Producer Company in which
he is a director in accordance with the provisions of this Act and articles.
(f) the annual general
meeting or extraordinary general meeting of the Producer Company, in which he
is a director, is not called in accordance with the provisions of this Act
except due to natural calamity or such other reason.
The above provisions shall, as far as may be,
apply to the director of a Producer institution which is a member of a Producer
Company.
Above provisions need
to be aligned as per section of 164 of the Companies, 2013, in clause (d)(i) of
the above provisions it is mentioned the office of Director shall become vacant
if the Producer Company in which he is director has not filed the annual
accounts and annual return for any continuous period of three financial years.
As per section
164(2)(a) of the Companies, 2013, a person shall not be eligible for appointment
as Director of a Company if he has not field financial statements or annual
return for continuous period of the three financial years.
In first instance
director will be disqualified if he has not filed both annual accounts and
annual return for a period of continuous three in financial years and in second
instance he is disqualified if either of financial statement or annual return are
not filed for a continuous period of three financial years.
4. What are the powers
and functions of the Board of Directors of a Producer Company?
The Board of directors
of Producer Company shall do all such acts and things and exercise all such
powers as is authorised by the Articles and by the provisions of this Act.
Certain powers which
shall be exercised by the Board of Directors of Producer Company are:
·day to day management functions of the
Producer Company such as formulation of the organisational policies &
objectives including longterm and annual objectives,
·formulation of corporate strategies and
financial plans;
·determination of the dividend payable;
·determination of the quantum of withheld
price and recommendation of patronage Bonus; admission of new Members;
·appointment of officers of the Producer
Company including Chief Executive, Company Secretary & exercise of superintendence,
direction and control over Chief Executive and other officers appointed;
·maintenance of books of accounts;
·preparation of annual accounts to be
placed before the annual general meeting with the auditor’s report and the
replies on qualifications, if any, made by the auditors;
·acquisition or disposal of property in
the ordinary course of business of Producer Company;
·investment of the funds in the ordinary course of business ;
·investment of the funds in the ordinary course of business ;
·sanction any loan or advance to any
Member not being a director or his relative ;
·such other measures as may be required
in the discharge of functions or exercise of powers.
All the above mentioned
powers shall be exercised by means of resolution passed at the Board. The
persons who are not in the Board shall not exercise any of the above mentioned
powers. Therefore the ex officio directors like Chief Executive Officer cannot
exercise above powers.
The Board of Directors
of Producer Company cannot transact business reserved for General Body as
mentioned u/s 581S.
5. What is the Liability
of the Directors in a Producer Company?
Liabilities of
directors in a Producer Company:
·Section 581T of the Companies Act, 1956,
provides that any contravention of the provisions of this Act or any other law or
provisions of articles, done by the directors of Producer Company, either by
way of voting on a resolution or approving by any other means, shall make such
directors either jointly or severally liable towards the Producer Company to
make good any loss or damage suffered by such Company.
·In all such cases, the Producer Company shall have the right to recover from its directors and if such director has made any profit (with ill intention), the Producer Company shall have the right to recover an amount equal to said profits from such directors and if in case of a loss or damage an amount equal to that loss or damage.
·The liability so imposed shall be in addition to and not in derogation of a liability imposed under this Act or any other law for the time being in force. However all acts done by the directors in the general interest of the company and its members and in accordance with the provisions of Memorandum, Articles and provisions of this act and loss or damage, if any suffered by company, then such loss or damage shall not be considered as personal liability of the directors and they shall not be required to make good such loss or damage.
·There can be various Committees of Directors which can be formed as a means of improving board effectiveness and efficiency, in areas where more focused, specialised and technical discussions are required. There commendation of the committee has to be approved by the Board.
·Section 581U of the Companies Act, 1956, states that the Board may constitute such number of committees as it may deem fit for the purposes of assisting the Board in efficient discharge of its functions. However, the Board of directors shall not delegate any of its powers or assign the powers of the Chief Executive, to any committee of directors.
·Every such committee may with the approval of the Board, co-opt such number of persons, as it deems fit, as the members of the committee. However in every such committee the Chief Executive appointed under Section 581W or a director of Producer Committee shall be a member.
·Every such committee shall be subject to general superintendence, direction and control of the Board. The Board may decide the duration, functioning and the fees and allowances to be paid to the members of the committee. The minutes of every Committee meeting shall be placed before the next Board meeting.
·In all such cases, the Producer Company shall have the right to recover from its directors and if such director has made any profit (with ill intention), the Producer Company shall have the right to recover an amount equal to said profits from such directors and if in case of a loss or damage an amount equal to that loss or damage.
·The liability so imposed shall be in addition to and not in derogation of a liability imposed under this Act or any other law for the time being in force. However all acts done by the directors in the general interest of the company and its members and in accordance with the provisions of Memorandum, Articles and provisions of this act and loss or damage, if any suffered by company, then such loss or damage shall not be considered as personal liability of the directors and they shall not be required to make good such loss or damage.
·There can be various Committees of Directors which can be formed as a means of improving board effectiveness and efficiency, in areas where more focused, specialised and technical discussions are required. There commendation of the committee has to be approved by the Board.
·Section 581U of the Companies Act, 1956, states that the Board may constitute such number of committees as it may deem fit for the purposes of assisting the Board in efficient discharge of its functions. However, the Board of directors shall not delegate any of its powers or assign the powers of the Chief Executive, to any committee of directors.
·Every such committee may with the approval of the Board, co-opt such number of persons, as it deems fit, as the members of the committee. However in every such committee the Chief Executive appointed under Section 581W or a director of Producer Committee shall be a member.
·Every such committee shall be subject to general superintendence, direction and control of the Board. The Board may decide the duration, functioning and the fees and allowances to be paid to the members of the committee. The minutes of every Committee meeting shall be placed before the next Board meeting.
4. Whether appointment
of Chief Executive is mandatory?
Yes, as per Section
581W of the Companies Act, 1956, every Producer Company shall have a full time
Chief Executive, by whatever name called, to be appointed by the Board from
amongst persons other than Members.
The Chief Executive
shall be ex officio director of the Board and such director shall not retire by
rotation.
In the above section
581W, time period within which a Producer Company shall comply with the
provisions of appointment of Chief Executive is not mentioned, as per general
practice we should comply it before closure of first financial year as in Form
MGT – 7 we have to mention whether Company has complied with all the provisions
of Companies Act or not.
5. Who is the Chief
Executive of a Producer Company?
The Chief Executive
Officer shall be an ex-officio director and shall not retire by rotation.
The qualifications,
experience and the terms and conditions of Chief Executive Officer shall be
such as may be determined by the Board subject to the provisions contained in
the Articles. The chief executive, who shall be entrusted with substantial
powers of the management, shall manage the affairs of the Producer Company but
subject to the superintendence, direction and control of the Board and is
accountable to the Board for the performance of the Producer Company.
Unless the articles
otherwise provide to the contrary, the Chief Executive Officer need not be a
Producer.
6. What are the powers
and functions of Chief Executive?
The Chief Executive
shall be entrusted with substantial powers of management and may exercise
powers and discharge the following functions:
(a) do administrative acts of a routine nature including
managing the day-today affairs of the Producer Company.
(b) operate bank accounts or authorise any person,
subject to the general or special approval of the Board in this behalf to
operate the bank account.
(c) make arrangements
for safe custody of cash and other assets of the Producer Company.
(d) sign such documents
as may be authorised by the Board, for and on behalf of the company.
(e) maintain proper
books of account ; prepare annual accounts and audit thereof ; place the
audited accounts before the Board and in the annual general meeting of the Members.
(f) furnish Members
with periodic information to appraise them of the operation and functions of
the Producer Company.
(g) make appointments
to posts in accordance with the powers delegated to him by the Board.
(h) assist the Board in
the formulation of goals, objectives, strategies, plans and policies.
(i) advise the Board
with respect to legal and regulatory matters concerning the proposed and on
going activities and take necessary action in respect thereof.
(j) exercise the powers
as may be necessary in the ordinary course of business.
(k) discharge such
other functions, and exercise such other powers, as may be delegated by the
Board.
7. Whether appointment
of Company Secretary is applicable to Producer Company?
As per Section 581K of
the Companies Act, 1956, every Producer Company having an average annual
turnover exceeding five crore rupees in each of three consecutive financial
years shall have a whole-time secretary.
No individual shall be
appointed as whole-time secretary unless he possesses membership of the
Institute of Company Secretaries of India constituted under the Company
Secretaries Act, 1980.
Clarification needed
from MCA as in the above section appointment of Company Secretary is based on
average annual turnover of the Company of preceding three consecutive financial
years whereas Section 203 of Companies Act, 2013, states every company whose
paid-up capital is 5 crores or more need to appoint a Whole time Company
Secretary in Employment.
8. Whether Producer Companies
can appoint Committees?
The Board may
constitute such number of committees as it may deem fit for the purpose of
assisting the Board in the efficient discharge of its functions provided that
the Board shall not delegate any of its powers or assign the powers of the Chief
Executive, to any committee.
A committee constituted
under with the approval of the Board, co-opt such number of persons as it deems
fit as members of the committee provided that the Chief Executive appointed
under section 581W or a director of the Producer Company shall be a member of
such committee.
The Chief Executive
appointed under section 581W or a director of the Producer Company shall be a
member of such committee.
The fee and allowances
to be paid to the members of the committee shall be such as may be determined
by the Board.
The minutes of each
meeting of the committee shall be placed before the Board at its next meeting.
9. How many Board
Meetings shall held in a financial year?
As per section 581V of
the Companies Act, 1956, meetings of the Board shall be held not less than once
in every three months and at least four such meetings shall be held in every
year.
Above provisions need
clarification and need to be aligned with Section 173 of Companies Act, 2013
and Secretarial Standard I, as per Secretarial Standard I read with Companies
Act, 2013, every company shall hold 4 Board meetings in a calendar year and gap
between 2 Board Meetings shall not be more than 120 days, in case of one person
company and small company are required to hold one Board Meeting in each of
calendar year and gap between 2 Board Meetings shall not be less than 90 days.
10. What are the
provisions with respect to Annual General Meeting for Producer Company?
As per section 581ZA of
the Companies Act, 1956, every Producer Company shall in each year, hold, in
addition to any other meetings, a general meeting, as its annual general
meeting and shall specify the meeting as such in the notices calling it, and
not more than fifteen months shall elapse between the date of one annual
general meeting of a Producer Company and that of the next.
The Registrar may, for
any special reason, permit extension of the time for holding any annual general
meeting (not being the first annual general meeting) by a period not exceeding
three months.
A Producer Company
shall hold its first annual general meeting within a period of ninety days from
the date of its incorporation.
Above clause 2 of
Section 581ZA states that the first Annual General Meeting shall be held within
a period of 90 days from the date if its incorporation which is different from
existing Companies Act 2013.
As per section 96 of
Companies Act, 2013, first Annual General Meeting shall held within 9 months of
close of first financial year.
11. What is the
business to be transacted in First Annual General Meeting of the Producer
Company?
The members shall adopt
the articles of the Producer Company and appoint directors of its Board in the
Annual General Meeting.
The Ministry may
consider deletion of clause 2 of section 581ZA and aligned with clause 1 of
section 96 of Companies Act 2013 where clause 1 states that the first Annual
General Meeting of the Company shall be held within 9 months of the closure of
first financial year.
Justification with
practical difficulty is briefed hereunder:
Business to be
transacted at the first Annual General Meeting, i.e. Adoption of Articles of
Association, as per the procedure followed under Companies Act 2013, the
Articles are already subscribed by the proposed promoters at the time of
incorporation and said subscribed articles are attached in Form INC – 7.
Adopting already
subscribed Articles in the Annual General Meeting by the same persons is of no
use and redundancy of procedure.
Secondly the provision
says about appointment of Directors, as per the procedure of formation of
Companies under Companies Act, 2013, First Directors are already mentioned in
Articles of Association which are already subscribed by all the promoters and
also Form DIR – 12 with consent to Act as Directors in Form DIR – 2 is filed
with Registrar at the time of Incorporation and thus this Directors are already
appointed.
Appointing already
appointed Directors in the first Annual General Meetings is again redundancy of
procedure.
i) Appointment of First
Auditors – As per clause 6 of section 139 first Auditors shall be appointed by
the Board of Directors within 30 days from the date of its incorporation and
such auditor shall hold office till the conclusion of First Annual General Meeting.
So in case of a
Producer Company the term of first Auditor shall be only of 90 days as the
producer company has to hold its first Annual General Meeting in 90 days from
the date of its incorporation. So if we go by the provisions of 581ZA then an
auditor has to be again appointed in that First Annual General Meeting or will
he continue to be the Auditor till the end of financial year is a part of
confusion.
ii) Case 1 say a
Company is incorporated on 25th December 2016 and as per the provisions of the
Companies Act 2013, the Company has to end its financial year on 31st March
2017.
In above case as per
Clause 2 of 581ZA Company has to hold its first annual general meeting within
90 days, lets say company held its First Annual General Meeting on 20th March
2017, but within a period 6 months Company has to again hold its Annual General
Meeting before 30th September for Adoption Accounts of first
financial year. It cannot take benefit of taking Annual General Meeting within
9 months as per the section 96 of Companies Act as practically this will be
second Annual General Meeting of the Company.
iii) Case 2 say a
Company is incorporated on 05th January 2016 and as per provisions of Companies
Act 2013 the Company has to end its financial year on 31st March 2017.
In above case as per
Clause 2 of 581ZA Company has to hold its first annual general meeting within
90 days, lets say company held its First Annual General Meeting on 28th March
2016, but in this case the Company has to hold its Annual General Meeting for
adoption of Accounts of the first financial year ending in 31st March 2017 by
28th June 2017 as the acts states that there shall not be a gap of more than 15
months between the two Annual General Meetings.
Again in above case
going through the Act the Company has to finalized accounts by May and lay it
before Shareholders by June as it cannot take benefit of taking Annual General
Meeting within 9 months as per the section 96 of Companies Act as practically
this will be second Annual General Meeting of the Company.
Citing above practical
difficulties and confusion which leads to diverse practices followed by
professional Ministry should re-consider the provisions and necessary changes
shall be made in the Act.
There is some practical
difficulty arising while working with Producer Companies with regard to
Allotment of Shares. The Ministry may consider for the clarification in this
regard.
Producer Companies are
getting government assistance under various schemes, such as SFAC Equity grant
scheme, SFAC Venture capital scheme, MACP scheme (Maharashtra), Nabard Finance
Scheme, but in all above schemes minimum members required for eligibility are
50, 500, 350 and 250 respectively.
Now the problem arises
as in section 581 there is no provisions w.r.t the allotment of shares, we have
to follow procedure ,mentioned in section 42 of Companies Act 2013 for private
placement, which itself is very lengthy and impracticable in above case. As
minimum application size shall be of Rs.20000/- and further we cannot allot
shares above 49 members in a single meeting and further we cannot allot more
than 200 members in a financial year.
Means if a company has
to avail a venture capital of SFAC it has to hold 10 Board Meetings in 2.5 year
and allot shares to 49 persons in each meeting then only then they will be
eligible, so it’s not practicable to hold 10 Board meeting which will be very
costly to the Company, further farmers are already very much low in finance so
how can a farmer take minimum shares of Rs.20000.
Probable solution for
the above problem:- As there is a exemption notification for NIDHI Companies
wherein they have exempted NIDHI companies from Section 42(2) Explanation (1),
42(3), 42(5), 42(7) (Private Placement) such exemptions also shall be granted
to PRODUCER COMPANIES so that they will not face above problems.
SHARE
CAPITAL AND MEMBERS RIGHTS FAQs
1. What are the types
of shares which producer Company can issue?
As per section 581ZB of
the Companies Act, 1956, the share capital of a Producer Company shall consist
of equity shares only.
The shares held by a
Member in a Producer Company, shall as far as may be, in proportion to the
patronage of that company.
Here “patronage” means
the use of services offered by the Producer Company to its Members by participation
in its business activities.
“Patronage bonus” means
payments made by a Producer Company out of its surplus income to the Members in
proportion to their respective patronage.
2. Can a Producer
Company give some special rights to the members of the Company?
The producers, who are
active members may, if so provided in the articles, have special rights and the
Producer Company may issue appropriate instruments to them in respect of such
special rights.
The instruments of the
Producer Company issued shall, after obtaining approval of the Board in that
behalf, be transferable to any other active Member of that Producer Company.
Explanation. - For the
purposes of this section, the expression “special right” means any right
relating to supply of additional produce by the active Member or any other
right relating to his produce which may be conferred upon him by the Board.
3. Whether shares of
Producer Companies are transferable?
A Member of a Producer
Company may, after obtaining the previous approval of the Board, transfer the
whole or part of his shares along with any special rights, to an active Member
at par.
Here “active members”
means a member who fulfils the quantum and period of patronage of the Producer
Company as may be required by the articles.
In the above provision
there is one practical difficulty as if there are only 10 members as required
by the Act and if one of them wants to transfer his shares and as the above
provision suggest that the shares can be transferred only to active member,
whether an outsider incoming member can be termed as an active member is the
question and if he transfers his shares to existing members then minimum
requirement of members will fall below which is again a default.
Probable resolution –
the provision of obtaining previous approval of the Board for transfer of
shares shall be kept as it is only the word transfer to active members shall be
interchanged with Producer.
4. Whether the members
of the Producer Company can appoint nominee?
Every Member shall, within
three months of his becoming a Member in the Producer Company, nominate, in the
manner specified in articles, a person to whom his shares in the Producer
Company shall vest in the event of his death.
The nominee shall, on
the death of the Member, become entitled to all the rights in the shares of the
Producer Company and the Board of that Company shall transfer the shares of the
deceased Member to his nominee.
In a case where such
nominee is not a producer, the Board shall direct the surrender of shares
together with special rights, if any, to the Producer Company at par value or
such other value as may be determined by the Board.
5. How are the voting
rights of members determined in Producer Companies?
The voting rights are
determined as follows:
·In a case where the membership consists
solely of individual members, the voting rights shall be based on a single vote
for every Member, irrespective of his shareholding or patronage of the Producer
Company.
·In a case where the membership consists
of Producer institutions only, the voting rights of such Producer institutions
shall be determined on the basis of their participation in the business of the
Producer Company in the previous year, as may be specified by articles.
Provided
that during the first year of registration of a Producer Company, the voting
rights shall be determined on the basis of the shareholding by such Producer
institutions.
·In a case where the membership consists
of individuals and Producer institutions, the voting rights shall be computed
on the basis of a single vote for every Member.
ACCOUNTS,
AUDIT, LOANS AND INVESTMENTS FAQs
1. What are the
requirements with respect to Internal Audit for Producer Companies?
As per section 581ZF of
the Companies Act, 1956, every Producer Company shall have internal audit of
its accounts carried out, at such interval and in such manner as may be
specified in articles, by a chartered accountant as defined in clause (b) of
sub-section (1) of section 2 of the Institute of Chartered Accountants Act, 1949.
As per Section 138 of
Companies Act, 2013, has widened the term of Internal Audit, any professional
like a Chartered Accountant, Cost Accountant, Company Secretary or Advocate can
be appointed as Internal Auditor whereas as per section 581ZF of the Companies
Act, 1956, internal audit of Producer Company can be carried out only by a
Chartered Accountant.
Clarification- If in
future above criteria mentioned as per Section 138 of Companies Act, 2013, is
made applicable to the Producer Companies most of the Companies would be
exempted from carrying out Internal Audit.
2. What are the duties
of an Auditor?
The auditor shall
report on the following additional matters relating to the Producer Company,
namely:
(i) the amount of debts
due along with particulars of bad debts if any
(ii) the verification
of cash balance and securities
(iii) all transactions
which appear to be contrary to the provisions of this Part
(iv) the loans given by
the Producer Company to the directors
(v) the donations or
subscriptions given by the Producer Company
(vi) any other matter
as may be considered necessary by the auditor
3. Whether Producer
Companies can make donations or subscriptions?
As per sections 581ZH
of the Companies Act, 1956, a Producer Company may, by special resolution, make
donation or subscription to any institution or individual for the purposes of:
a) promoting the social
and economic welfare of Producer Members or producers or general public
b) promoting the mutual
assistance principles
The aggregate amount of
all such donation and subscription in any financial year shall not exceed three
per cent of the net profit of the Producer Company in the financial year
immediately preceding the financial year in which the donation or subscription
was made.
No Producer Company
shall make directly or indirectly to any political party or for any political
purpose to any person any contribution or subscription or make available any
facilities including personnel or material.
5. Whether Producer
Companies are required to transfer any funds to general reserves?
Every Producer Company
shall maintain a general reserve in every financial year, in addition to any
reserve maintained by it as may be specified in articles.
In a case where the
Producer Company does not have sufficient funds in any financial year for
transfer to maintain the reserves as may be specified in articles, the
contribution to the reserve shall be shared amongst the Members in proportion to
their patronage in the business of that company in that year.
6. Can Producer Companies
advance Loans or provide for financial assistance or credit facilities to its
members?
As per Section 581ZK of
the Companies Act, 1956, the Board may, subject to the provisions made in
articles, provide financial assistance to the Members of the Producer Company
by way of:
a) credit facility, to
any Member, in connection with the business of the Producer Company, for a
period not exceeding six months.
b) loans and advances,
against security specified in articles to any Member, repayable within a period
exceeding three months but not exceeding seven years from the date of
disbursement of such loan or advances :
Further, any loan or
advance to any director or his relative shall be granted only after the
approval by the Members in general meeting.
Comparison with
Companies Act, 2013:
Above provisions are in
respect of loan to directors, their relatives and members, when the above
provisions were enacted, Section 295 of Companies Act, 1956, was not applicable
to private companies, but in current scenario Section 185 of Companies Act,
2013, is applicable to private companies (Read with exemption notification for
Private Companies dated 05th June 2015).
7. Elaborate the aspect
of investment by the Producer Company in other Companies, Formation of
Subsidiaries etc.
Investment by the
Producer Company in other Companies, Formation of Subsidiaries etc.:
(i) As per Section
581ZL of the Companies Act, 1956, the general reserves of any Producer Company
shall be invested to secure the highest returns available from approved
securities, fixed deposits, units, bonds issued by the Government or
co-operative or scheduled bank or in such other mode as may be prescribed.
(ii) Any Producer
Company may, for promotion of its objectives acquire the shares of another
Producer Company.
(iii) Any Producer
Company may subscribe to the share capital of, or enter into any agreement or
other arrangement, whether by way of formation of its subsidiary company, joint
venture or in any other manner with anybody corporate, for the purpose of
promoting the objects of the Producer Company by special resolution in this
behalf.
(iv) Any Producer
Company, either by itself or together with its subsidiaries, may invest, by way
of subscription, purchase or otherwise, shares in any other company as in point
(ii), other than a Producer Company, or subscription of capital as in point
(iii), for an amount not exceeding thirty per cent of the aggregate of its
paid-up capital and free reserves.
(v) A Producer Company
may, by special resolution passed in its general meeting and with prior
approval of the Central Government, invest in excess of the limits specified in
this section.
(vi) All investments by
a Producer Company may be made if such investments are consistent with the
objects of the Producer Company.
(vii) The Board of a
Producer Company may, with the previous approval of Members by a special
resolution, dispose of any of its investments referred to in points (iii) and
(iv).
(viii) Every Producer
Company shall maintain a register containing particulars of all the
investments, showing:
·the names of the companies in which
shares have been acquired,
·number and value of shares ;
·the date of acquisition ; and
·the manner and price at which any of the
shares have been subsequently disposed of
(ix) The register shall
be kept at the registered office of the Producer Company and the same shall be
open to inspection by any Member who may take extracts there from.
CASE STUDY:
Vanilla
India Producer Company Limited (Vanilco) is a new venture, promoted by Indian
vanilla farmers to protect the long term interests of vanilla growers all over
the country. Vanilco is a Producer Company with the twin objective of promoting
vanilla production and processing vanilla as per international standards.
Vanilco is owned by farmers and it works in tandem with them to produce and
market the best vanilla beans and extracts. Its goal is to ensure a just and
fair value for the farmers’ produce at par with the international markets and
standards. The company procures, processes, benchmarks and markets the farmer’
produce and generates profits that are distributed to share holders as handsome
dividends. Today Vanilco is recognized as one of the most reliable suppliers of
natural Vanilla in the market, thanks to the technical know-how, quality of
products, commercial expertise and knowledge of global markets.
It
can aptly be concluded that the intention behind insertion of the concept of
Producer Company in Companies Act, 1956 is to ensure a more beneficial and easy
adaptable regulatory framework of such companies and it is to be well noted
that whether it is a Producer Co-operative registered under Co-operative
Societies Act, or a Producer Company under the Companies Act, they both serve
for the common purpose as to serve its members and work for their betterment.
Some of the
Producing Companies in India
1. Khujner Producer Company Ltd.
2. Hardol Vegetable Producer Company Ltd.
3.
Rewa Producer Company Ltd.
4. Neshkala Producer Company Ltd.
5. Devnadi Valley Producer Company Ltd.
6.
Devbhumi Natural Products Producer Company Ltd.
7. Kabini Organic Farmers Producer Company Ltd.
8. Grameen Aloe Producer Company Ltd.
9. Mahila Umang Producer Company Ltd.
10. Vanilla Producer Company Ltd.
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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.
