Introduction

Section 378A(I) of the Companies Act 2013 defines a 'producer company' as a body corporate which:

  • has an objective or performs activities specified in Section 378B of the act;
  • is registered as a producer company under the Companies Act 2013 or under applicable provisions of the Companies Act 1956; and
  • carries on or has an objective relating to any of the below activities:
    • the production, harvesting, procurement, grading, pooling, handling, marketing, sale or export of primary produce of its members or the import of goods or services for their benefit (provided that the producer company may carry on any of the specified activities either by itself or through another institution);
    • the manufacture, sale or supply of machinery, equipment or consumables, mainly to its members;
    • the rendering of technical services, consultancy services, training, research and development or any other activities for the promotion of its members' interests;
    • the generation, transmission and distribution of power, revitalisation of land and water resources or their use or conservation, as well communication relating to primary produce;
    • the insurance of producers or their primary produce; or
    • the promotion of techniques of mutual assistance, welfare measures or financial services.

Incorporation

The following combination of producers can incorporate a producer company under the Companies Act 2013:

  • any 10 or more individuals, each of them being a producer;
  • any two or more producer institutions; or
  • a combination of 10 or more producers and producer institutions.

If satisfied that all requirements regarding registration have been complied with, the registrar will register the memorandum, articles and other documents, if any, and issue a certificate of incorporation under the Companies Act 2013 within 30 days of receipt of the requisite documents.

Pursuant to registration under the Companies Act 2013, a producer company becomes a body corporate as if it is a private limited company, to which the provisions of producer companies apply. However, there is no limit on the number of members that a producer company may have.

Under no circumstances can a producer company become or be deemed to have become a public limited company.

Key features

The key features of producer companies are as follows:

  • A producer company is termed a 'company with limited liability' and the liability of its members are limited to the amount unpaid on the shares, if any.
  • The name of a producer company must end with the words 'Producer Company Limited'.
  • The share capital of a producer company consists only of equity shares. Further, equity shares of a producer company's members cannot be publicly traded and can only be transferred.
  • Where only individuals are members of a producer company, each member will have a single vote. Where only producer institutions are members, voting rights are determined on the basis of the members' participation in the business in the previous year. In cases where both individuals and institutions are members, each member has a single vote.
  • A producer company should have a minimum of five directors and a maximum of 15 directors. However, interstate cooperative societies incorporated as producer companies can have more than 15 directors for one year from the date of incorporation.
  • A producer company must hold an annual general meeting of its members every year. The first general meeting must be held within 90 days from the date of the company's incorporation, wherein the company must adopt its articles of association and appoint the directors of its board. Under the Companies Act 2013, the quorum for a general meeting of a producer company is one-fourth of the total members. However, a producer company's articles of association may provide for a larger quorum for general meetings.
  • Every producer company must appoint a full-time CEO, to be chosen by the board from persons other than the members.
  • Producer companies must have a board meeting every three months and at least four times a year. The quorum for board meetings is one-third of the total number of directors, subject to a minimum of three.
  • Producer companies must maintain a general reserve each financial year. The Ministry of Corporate Affairs recently notified the Producer Companies Rules 2021 in supersession of the Producer Companies (General Reserves) Rules 2003, except as regards things done or omitted to be done before such supersession. The new rules provide that a producer company's investment of general reserves must be made in any one or combination of the following:
    • in approved securities, fixed deposits, units or bonds issued by the central government, a state government, a cooperative society or a scheduled bank;
    • in a cooperative bank, state cooperative bank, cooperative land development bank or central cooperative bank;
    • with any other scheduled bank;
    • in any of the securities specified in Section 20 of the Trusts Act 1882 (02/1882);
    • in the shares or securities of any other interstate cooperative society or any cooperative society; or
    • in the shares, securities or assets of public financial institutions specified under Section 2(72) of the Companies Act 2013.

Lastly, all limitations, restrictions and provisions of the Companies Act 2013 which apply to private companies, other than those specified in the provisions of producer companies, will, as far as may be, apply to producer companies as if they are private limited companies under the Companies Act 2013, insofar as they do not conflict with the provisions of producer companies.