Producer Company

Producer Company: complete guide

Introduction

A producer company is a company formed by primary producers, such as farmers, milk producers, fishers, artisans and forest produce gatherers, to collectively handle the production, procurement, processing, marketing and sale of what they produce. It combines the mutual-benefit spirit of a cooperative with the structure and professional management of a company. Producer companies are often called Farmer Producer Companies or Farmer Producer Organisations when their members are farmers, and they have become a central part of government policy for improving farm incomes.

Producer companies were first introduced through Part IXA of the Companies Act, 1956. When the Companies Act, 2013 was brought in, the producer company provisions continued to apply under the old Part IXA for some years. In 2020, a new Chapter XXIA, covering Sections 378A to 378ZU, was inserted into the Companies Act, 2013, so producer companies are now governed directly by the 2013 Act. The company is registered with the Registrar of Companies, and its name must end with the words "Producer Company Limited".

Unlike an ordinary company, a producer company has rules that keep control with the producers. Only producers and producer institutions can be members. Voting is generally on a one-member-one-vote basis for individual members, rather than in proportion to shareholding. Shares cannot be traded freely to outsiders. Surplus is shared through patronage bonus based on members' participation in the business rather than solely on shareholding. These features protect the producer company from being taken over by outside investors.

Professional help matters because a producer company has its own set of rules on membership, objects, board composition, voting, reserves and distribution of surplus, which are different from those of a private limited company. Its articles must reflect these rules. Ten or more producers, often from rural areas, must complete digital signatures and identity documents correctly. And producer companies seeking support under government schemes for FPOs must meet additional criteria. Our team drafts the documents, handles the incorporation filings and helps you set up the governance and compliance the company will need.

This page explains who should form a producer company, the legal requirements, the step-by-step process, documents, timelines, our fee and what happens after registration.

Who Needs It

A producer company is suitable for:

• Farmer groups. Farmers who want to buy inputs such as seeds, fertilisers and equipment in bulk, aggregate their produce and sell directly to processors, exporters or retail buyers.
• Dairy and livestock producers. Groups that want to collect, chill, process and market milk or other animal products collectively.
• Fishers and aquaculture producers. Communities that want shared processing, storage and marketing facilities.
• Artisans and handloom weavers. Producers of handicrafts and handloom products who want to market under a common brand and access larger buyers.
• Forest produce gatherers. Communities collecting minor forest produce who want to add value through processing and fair marketing.
• Self-help groups and existing cooperatives. Producer groups that want to move to a company structure with professional management. An inter-state cooperative society can also convert into a producer company by following the prescribed procedure.
• Organisations promoting FPOs. Non-profits and agencies that support producer groups often help them incorporate as producer companies so they can access scheme support and credit.

Key Benefits

• Collective bargaining power. Aggregating produce and buying inputs together helps members get better prices on both sides.
• Separate legal entity and limited liability. The company can own assets, enter contracts and borrow in its own name, and members' liability is limited.
• Producer control. One-member-one-vote and restrictions on share transfer keep control with the producers.
• Access to government schemes. Producer companies are eligible for support under central and state programmes for Farmer Producer Organisations, including equity grants and credit support, subject to scheme conditions.
• Easier access to credit. Banks and development finance institutions have dedicated lending products for producer companies.
• Patronage-based returns. Members benefit in proportion to their participation, which rewards active members.
• Professional management. The company can employ a chief executive and staff, while the board of producers sets direction.
• Tax treatment. Producer companies are taxed as companies under the Income-tax Act. Certain incentives, such as deductions for eligible producer companies engaged in specified agricultural activities, have been available for limited periods under the tax law, subject to conditions.

How a producer company compares with a cooperative society. Both are member-owned. A cooperative is registered under a state or multi-state cooperative law and is supervised by the Registrar of Cooperative Societies, which can involve more government oversight. A producer company is registered under the Companies Act, has more operational autonomy, and is subject to company law compliance and audit. Many producer groups choose the company structure for its flexibility and for easier dealings with corporate buyers.

How a producer company compares with a private limited company. A private limited company can have outside investors with voting rights in proportion to shares, and shares can be transferred more freely. A producer company is restricted to producer members, and its objects are limited to activities connected with members' produce. A producer company also cannot be converted into a public company or listed.

Eligibility and Legal Requirements

The key requirements under Chapter XXIA of the Companies Act, 2013 are:

• Who can form it. Ten or more individuals, each of whom is a producer; or two or more producer institutions; or a combination of ten or more individuals and producer institutions.
• Producer. A person engaged in an activity connected with or relatable to primary produce, such as agriculture, horticulture, animal husbandry, fisheries, forestry, handloom, handicrafts and other cottage industries.
• Objects. The objects must relate to one or more activities set out in Section 378B, such as production, harvesting, procurement, grading, pooling, handling, marketing, selling and export of members' primary produce; processing; supply of inputs and services to members; education on mutual assistance; welfare measures; and insurance of producers or their produce.
• Directors. A minimum of five and a maximum of fifteen directors. Additional or expert directors can be co-opted within the limits in the law.
• Chief executive. The board must appoint a full-time chief executive, who is an ex officio director and is not rotated.
• Name. The name must end with "Producer Company Limited".
• Minimum capital. The law does not prescribe a minimum paid-up capital for incorporation in the Chapter itself, but the share capital must be enough for the activities and must be planned with the members' contributions in mind. Government schemes may have their own capital criteria.
• Membership restrictions. Only producers and producer institutions can be members. A member who ceases to be a producer or fails to transact with the company can lose membership as per the articles.
• Voting rights. Where membership consists only of individuals, voting is on the basis of one member one vote, whatever the shareholding. Where producer institutions are members, voting can be based on their participation in business, as set out in the articles.
• Share transfer. Shares are transferable only to active members, with the approval of the board, at the value determined as per the articles.
• Reserves and distribution. Members receive a limited return on share capital and a patronage bonus out of surplus, after a general reserve is maintained as required.
• Registered office, DSC and DIN. As for other companies, a registered office in India, digital signatures for all subscribers and DIN for directors are needed.

Company law requirements are amended from time to time. We check the current position at the time of filing.

Step-by-Step Guide

1. Consultation and planning. We understand who the producers are, what they produce, the area covered, the planned activities and whether the company will seek support under a government scheme.
2. Identifying subscribers and directors. We confirm that at least ten individual producers or two producer institutions will subscribe, and select at least five directors.
3. Proof of producer status. We advise on documents that show members are producers, such as land records for farmers or artisan identity cards, which are often required by schemes and lenders.
4. Digital Signature Certificates. We arrange Class 3 Digital Signature Certificates for all subscribers and directors.
5. Name reservation. We check availability and reserve a name ending with "Producer Company Limited" through SPICe+.
6. Drafting the Memorandum and Articles. We draft the MoA with objects that comply with Section 378B and the AoA with provisions on membership, voting, share transfer, patronage bonus, reserves, board powers and the chief executive.
7. Filing SPICe+ and linked forms. We prepare SPICe+ Part B, e-MoA, e-AoA and AGILE-PRO-S. Government fees and stamp duty are paid online at actual.
8. Scrutiny and resubmission. If the Registrar asks for changes, we revise the documents and refile within the time allowed.
9. Certificate of Incorporation. The Registrar issues the certificate with the CIN, along with PAN and TAN for the company.
10. Handover and first steps. We share the incorporation documents and guide you on the first board meeting, appointment of the chief executive, bank account, share certificates and scheme applications.

Documents Checklist

For each individual subscriber and director:

• PAN card
• Aadhaar card, voter ID, passport or driving licence
• Recent bank statement or utility bill as address proof
• Passport-size photograph
• Email address and mobile number
• Proof of being a producer, such as land records, a farmer identity card, a dairy membership record or an artisan card

For a producer institution as subscriber:

• Certificate of registration or incorporation
• Constitutional documents, such as bye-laws or articles
• Resolution authorising subscription and naming a representative
• Proof that the institution is a producer institution

For the registered office:

• Latest electricity or water bill or property tax receipt of the premises
• Rent agreement or lease, if rented
• No-objection certificate from the owner, which is common where the office is in a member's house or a community building

Other information:

• Proposed activities and area of operation
• Proposed share capital and contribution by each subscriber

How Long It Takes

A producer company is usually incorporated within 15 to 25 working days from the date we receive complete documents. A typical timeline:

• Digital Signature Certificates: two to five working days, since many subscribers may need assistance with verification.
• Name reservation: two to four working days.
• Drafting documents and collecting signatures: three to seven working days, depending on how quickly all subscribers sign.
• Registrar processing: about one to two weeks, longer if resubmission is needed.

The largest delays usually come from collecting complete and consistent documents from a large number of subscribers. We coordinate closely with the group's lead members to keep this moving.

Pricing

Our professional fee for Producer Company is ₹ 19,999.

This covers:

• Consultation on structure, membership and objects
• Name availability search and reservation
• Drafting of Memorandum and Articles of Association tailored to producer company rules
• Preparation and filing of SPICe+ and linked forms for up to the minimum number of subscribers and directors
• Handling of resubmission requests
• Incorporation certificate, PAN and TAN
• Guidance on first board meeting, chief executive appointment and bank account

Government fees and stamp duty are payable at actual. Digital Signature Certificates, additional subscribers beyond the base number, scheme applications and annual compliance are quoted separately.

Common Mistakes to Avoid

• Subscribers who are not producers. Every member must be a producer or producer institution. Including non-producers can cause problems with the Registrar, schemes and lenders.
• Objects outside Section 378B. Objects must relate to members' primary produce and permitted activities. Wide commercial objects are not allowed.
• Copying private company articles. A producer company's articles must deal with one-member-one-vote, patronage bonus, share transfer limits and other specific provisions.
• Not appointing a chief executive. The law requires a full-time chief executive, which is often overlooked by new boards.
• Inconsistent subscriber documents. With many rural subscribers, mismatched names and addresses across PAN and Aadhaar are common and cause rejections.
• Ignoring annual compliance. Producer companies must file financial statements and annual returns and hold meetings like other companies. Missing these can lead to penalties and disqualification of directors.
• Distributing surplus incorrectly. The law sets rules on reserves, limited return on shares and patronage bonus that must be followed.

What Happens After

After incorporation, a producer company must:

• Hold the first board meeting and appoint the chief executive and the first auditor within the time allowed.
• Open a bank account and collect share capital from members.
• Issue share certificates and maintain the register of members.
• Admit new members as per the articles, and keep membership records up to date.
• Hold board meetings at least once in every quarter and an annual general meeting within the time allowed.
• Get accounts audited each year, including the additional matters that auditors of producer companies must report on.
• File financial statements and annual returns with the Registrar.
• Maintain reserves and distribute surplus as limited return and patronage bonus according to the law and articles.
• Register under GST, FSSAI, APMC or other laws where the activities require it.
• File income tax returns and comply with TDS where applicable.

Our team offers annual compliance support for producer companies, including board meeting minutes, AGM documents and annual filings.

FAQs

How many members are needed to form a producer company?

At least ten individual producers, or two or more producer institutions, or a combination of the two, are needed to form a producer company.

Can non-farmers be members of a producer company?

Only producers can be members. A producer includes people engaged in agriculture, animal husbandry, fisheries, forestry, handloom, handicrafts and other cottage industries, and related primary produce activities.

How many directors does a producer company need?

A producer company must have at least five and not more than fifteen directors. A full-time chief executive must also be appointed and acts as an ex officio director.

Is there a minimum capital requirement?

The producer company provisions do not set a specific minimum paid-up capital for incorporation. The capital should be planned based on members' contributions and business needs. Some schemes and lenders have their own criteria.

Can a producer company raise money from outside investors?

Outside investors cannot become members with voting rights. A producer company can borrow from banks and financial institutions, and receive grants or equity support under government schemes, subject to the law and its articles.

Can a producer company be converted into a private limited company?

The law restricts producer companies from converting into public companies or being listed. Any restructuring needs careful review of the Companies Act and the specific provisions for producer companies.

Can a producer company sell to non-members?

Yes. A producer company can sell members' produce to outside buyers. Its objects relate to members' produce, but its customers can be any buyers.

What is a patronage bonus?

A patronage bonus is a payment to members out of the company's surplus in proportion to their participation in the business, such as the quantity of produce supplied. It rewards active participation rather than just shareholding.

Can a cooperative society convert into a producer company?

Yes. An inter-state cooperative society with objects not confined to one state can convert into a producer company by following the procedure in the Companies Act. Conversion of state cooperatives depends on the state law and should be reviewed case by case.

Is a producer company required to get its accounts audited?

Yes. Every producer company must have its accounts audited each year. The auditor must also report on specific matters relating to producer companies, such as loans to directors and the treatment of members' funds.

Can a producer company get government support?

Producer companies can apply for support under central and state programmes for Farmer Producer Organisations, which may include equity grants, credit support and handholding through implementing agencies. Eligibility depends on the scheme in force and its conditions.

Do members need to have land to be part of a farmer producer company?

Not necessarily. Tenant farmers and sharecroppers can also be producers, but schemes and lenders often ask for proof of farming activity, which can be land records or other documents accepted under the scheme.

How often must a producer company hold board meetings?

The board must meet at least once in every quarter. The annual general meeting must be held within the time allowed after the close of the financial year.

Related Business Setup services

• Singapore Incorporation
• Sole Proprietorship
• Startup India Registration
• UK Incorporation