Overview of Producer Company Registration

A producer company is a legally recognised group of farmers/agriculturists with the goal of improving their standard of living and ensuring the sustainability of their available assistance, revenue and profitability.

Section 465(1) of the Companies Act, 2013 states that the provisions relating to a Producer Company under the Companies Act, 1956 would continue to apply. As a result, under the Act, a Producer Company can be founded by 10 persons (or more) or 2 institutions (or more) or by a combination of both (10 individuals and 2 institutions) with the defined business aim.

What are the Benefits of Registering a Farmer Producer Company in India?

There are many benefits of establishing a farmer producer company in the country, which includes:

• Deposit Acceptance

One of the key advantages of the Farmer Producer Company is its ability to accept deposits, including fixed deposits and recurring deposits, from its members.

• Loan Against Security

The Farmer Producer Company is authorised to function as a lending agency, allowing it to extend credit to its members using assets such as fixed deposits, gold and government securities as collateral.

• Profit Allocation to Members

The generated profit or income within the Farmer Producer Company is retained within the organisation and distributed among its members, mainly farmers, according to their participation.

• Tax Exemption on Agricultural Income

The Farmer Producer Company enjoys tax exemption on the profit it generates. It is currently exempted from any tax obligations imposed by the IT department on agricultural income.

• Loan Facility to Members

In addition to accepting deposits, the Farmer Producer Company can also provide loan facilities to its founding members.

• Collective Bargaining Power

As a collective entity, the Farmer Producer Company strengthens the bargaining power of individual farmers in the market. By pooling resources and negotiating as a group, they can obtain better prices for their agricultural produce and reduce input costs.

• Access to Modern Technology and Practices

Through the Farmer Producer Company, farmers gain access to modern agricultural technologies, best practices and training. This helps improve the overall productivity and efficiency of their farming operations.

• Market Linkages

The Farmer Producer Company can establish direct market linkages with buyers, processors, exporters and other stakeholders. This eliminates the need for intermediaries and ensures fair prices for the farmers' produce.

• Risk Sharing

By working together as a collective, the farmers can share and mitigate risks associated with farming, such as crop failure, market fluctuations and natural disasters.

• Government Support and Incentives

The government of India offers various support schemes and incentives to promote the formation and growth of Farmer Producer Companies. These can include financial assistance, subsidies and technical support.

What are the Activities that Producer Companies are Authorised to do?

A Producer Company is empowered to engage in the following activities, all of which revolve around benefiting its members and promoting mutual assistance. They are:

1. Processing: This includes various processes like preserving, brewing, vinting, drying, distilling, canning and packaging the produce of its members.
2. Equipment and Machinery: The company can manufacture, sell or supply equipment, machinery or consumables to its producer members.
3. Education and Consultancy: Providing education on mutual assistance principles to its members and offering consultancy services, technical assistance, training and research and development activities to promote their interests.
4. Power and Communication: The generation, transmission and distribution of power, conservation and communication related to primary produce, along with renewal of land and water resources.
5. Insurance: The company can offer insurance services for the primary produce and its producers.
6. Promoting Mutuality: The company's objective includes promoting the techniques of mutuality and mutual assistance among its members.
7. Welfare Activities: Undertaking welfare activities for its members as decided by the Board.
8. Financing Support: Providing financial assistance for procurement, marketing, processing and extending credit facilities to its producer members.
9. Ancillary Activities: Engaging in any other ancillary or incidental activity that promotes mutual assistance among its members and aligns with the principles of mutuality.

Types of Farmer Producer Company

There are many varieties of FPCs in the usual course. Some of them are:

• Production Businesses: Producer companies primarily engage in the production, procurement or manufacturing of any primary produce for the benefit of their members. They may carry out these activities with the intention of further selling the produce, either to their members or to other entities.
• Marketing Businesses: A farmer producer company can also operate as a business involved in the marketing or promotion of primary produce. Additionally, they may provide educational services to their members and others, supporting the marketing and distribution of agricultural products.
• Technical Service Businesses: Companies offering technical assistance to producers, such as providing training, educational services or conducting research and development, can register themselves as producer companies. Their focus is on supporting and enhancing the technical knowledge and capabilities of their members.
• Financing Businesses: Producer companies involved in financing various producer activities, regardless of whether it relates to production, marketing or development, are eligible for registration.
• Infrastructure Businesses: Some producer companies specialise in providing infrastructure-related services to producers. This can encompass various aspects, such as electricity supply, water resources management, irrigation techniques, land utilisation and consultation services pertaining to these infrastructural aspects.

What are the Basic Eligibility Criteria for Farmer Producer Organisations/Companies?

To incorporate a Farmer Producer Organisation (FPO) in accordance with the Companies Act, 1956, the following essentials must be met:

1. Composition of Members: A Producer Company can be formed by any of the following combinations:

• Ten or more individuals, each of them being a producer.
• Two or more Producer Institutions.
• A combination of ten or more individuals and Producer Institutions.

2. Number of Directors: The FPO should have a minimum of 5 and a maximum of 15 directors.
3. Minimum Capital Requirement: A minimum capital of Rs. 5,00,000 is necessary for the incorporation of a producer company. However, it is advisable to establish the FPO with an authorised capital of Rs. 15 lakhs, as this qualifies for the government scheme of nil stamp duty.
4. Digital Signature Requirement: All the subscribers, regardless of the number of directors, must possess a digital signature. This is mandatory during the incorporation process of the FPO.

Mandatory Documents for Farmer Producer Company Registration

To successfully incorporate a Farmer Producer Company in India, the following essential documents are required:

• PAN & Photographs: PAN (Permanent Account Number) and photographs of all active directors and shareholders are mandatory for the incorporation process.
• ID Proof: The ID proof documentation should include Aadhar card, Driving License, passport and voter ID of all Directors, members and shareholders involved in the company.
• Address Proof: Address proof documents must consist of bank statements and utility bills, such as landline, mobile and electricity bills, for verification purposes.
• Producer Proof: Proof of being a producer, which may include a Sarpanch letter, Khasra-Khatauni documents, Income Tax Return (ITR) indicating agricultural income or any other relevant evidence.
• Registered Address Proof: For the registered address of the company, the necessary documents comprise a no-objection certificate from the owner, along with utility bills and a rent agreement if applicable.

What are the Financial Support Options for Producer Companies?

Producer Companies, being comprised of primary producers, often require financial assistance to support their activities. The Act includes provisions to address this need, enabling Producer Companies to provide loans and investments to their members. The various financial support options available for FPC/FPOs are:

1. Credit Facility:

• Producer Companies can offer credit facilities to their members, but the duration should not exceed six months.
• Such credit facilities must be connected to the business activities of the Company.

2. Loans and Advances:

• Producer Companies can provide loans and advances to their members against appropriate security.
• The repayment period for such loans or advances must not exceed seven years from the date of disbursement.

3. NABARD Loan:

• NABARD (National Bank for Agriculture and Rural Development) offers support and financial assistance to meet the needs of Producer Companies.

• NABARD also established the Producer Organisation Development Fund (PODF), amounting to Rs. 50 crores, from its operating surplus to provide additional assistance.

Taxation of Producer Companies in India

Under the Income Tax Act, 1961, agricultural income is generally exempted under section 10(1). However, the extent of this exemption may vary based on the specific agricultural activity undertaken.

Tax Benefits for Producer Companies

While the Income Tax Act does not explicitly outline special tax benefits or exemptions for producer companies, certain tax advantages and exemptions can be availed based on the agricultural activities conducted by the producer company.

For example, money earned from the sale of produced green tea leaves is classified as agricultural income under the IT Act and is tax-free. But, in case the tea leaves are further processed for tea manufacture, only 60% of the income is considered agricultural income and the remaining 40% is taxed.

What is the Procedure for Registering a Producer Company in India?

The detailed process for registration of farmer producer company/farmer producer organisation is as follows:

Step 1: Apply and Obtain the DIN and DSC

• Apply for the Digital Signature Certificate (DSC) to enable electronic or digital signatures.
• Simultaneously, apply for the Director Identification Number (DIN) for all directors.
• These applications, along with the SPICe form, must be submitted.

Step 2: Name Approval

• Initiate the process of name approval for the producer company.
• Apply for name approval through the MCA (Ministry of Corporate Affairs).
• Use the RUN process (Reserve Unique Name) for this purpose.
• The ROC and MCA will check for name availability.
• Upon approval, the applicant must proceed to secure the Certificate of Incorporation within 20 days of the application.

Step 3: Drafting the Memorandum of Association and Articles of Association

• After submitting the documents with the SPICe Form, proceed to draft the Memorandum of Association (MoA) and Articles of Association (AoA).
• Members of the company must sign an affidavit indicating their purpose and commitment.

Step 4: Incorporation Certificate

• In the final step, the company receives the Certificate of Incorporation.
• The process usually takes around 10 days for completion.

What are the Services Offered by Startupfino for Producer Company Registration and Compliances?

Starting a producer company will provide several benefits to any farmer or producer who has some sort of produce related to agriculture products. A producing company would profit from market inputs, digitalisation and technology. It is simple to establish a producing firm.

The establishment and regulation of a Farmer Producer Company is controlled by the provisions of Sections 581A to 581ZL of the Companies Act, 1956, as amended by the Companies Act, 2013, which means that powers are granted under Section 465 and the rules established thereunder.

Startupfino is a company that specialises in offering complete services for Producer Company Registration and Compliances. We can aid with everything from providing advice in the beginning phase to ensuring that you meet all the necessary requirements and also keeping your Farmer Producer Company in good legal standing.

Our services include the below mentioned:

• Facilitating the provision of loan facilities to founding members and helping with credit facilities aligned with the business aims.
• Providing guidance on tax exemption for agricultural income under the Income Tax Act, thus ensuring compliance and benefits for the producer company.
• Expertise in simplifying the legal procedures and documentation to ensure a hassle-free registration experience for the farmer producer company in India.
• Streamlined incorporation process to secure the Certificate of Incorporation within the stipulated time frame.
• Efficient drafting of Memorandum of Association (MoA) and Articles of Association (AoA) in compliance with regulations.
• Expert guidance for name approval process through the Ministry of Corporate Affairs (MCA) and Registrar of Companies (ROC).
• Comprehensive assistance in obtaining Digital Signature Certificates (DSC) and Director Identification Numbers (DIN) for all members.
• Guiding producer companies on accessing various government support schemes, subsidies and technical assistance to promote their growth and development.

By availing our services, entrepreneurs can avoid the negative outcomes of non-followance of rules and compliances. StartupFino works hard to provide services that are prompt and effective, so you can manage your business without any issues and without facing penalties or problems.