Producer Company

The concept of Producer Companies was introduced in the year 2002 by incorporating Part IXA (section 581A to 581ZT) into the Companies Act, 1956. The proviso to Section 465 (1) of the Companies Act, 2013 provides that the provisions of Part IX A of the Companies Act, 1956 shall be applicable mutatis mutandis to a Producer Company in a manner as if the Companies Act, 1956 has not been repealed until a special Act is enacted for Producer Companies

Definition of the Producer Company:

“Producer Company” means a body corporate having objects or activities specified in section 581B and registered as Producer Company under the Companies Act, 1956.

Objects of the Producer Company:

  1. 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 Producer Company may carry on any of the activities specified in this clause either by itself or through other institution;
  2. Processing including preserving, drying, distilling, brewing, vinting, canning and packaging of produce of its Members;
  3. Manufacture, sale or supply of machinery, equipment or consumables mainly to its Members.
  4. Providing education on the mutual assistance principles to its members and others.
  5. Rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its members.
  6. Generation, transmission and distribution of power, revitalization of land and water resources, their use, conservation and communications relatable to primary produce.
  7. Insurance of producers or their primary produce.
  8. Promoting techniques of mutuality and mutual assistance.
  9. Welfare measures or facilities for the benefit of members as may be decided by the Board.
  10. 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.
  11. Financing of procurement, processing, marketing or other activities specified in clauses (a) to (j) which include extending of credit facilities or any other financial services to its Members.

Key  Compliances of the Producer Company:

S. No Particulars Section Provisions
1 Name of the company Section 581F(a) Name of the company shall end with the words “Producer Company Limited”
2 Number of the Directors Section 581P Minimum- 5 Directors

Maximum- 15 Directors

In case of an inter-State co-operative society incorporated as a Producer Company, such company may have more than 15 directors for a period of 1 year from the date of its incorporation as a Producer Company.

3 Election of the Directors Section 581P(2) The election of directors shall be conducted within a period of ninety days of the registration of the Producer Company. “Inter-State co-operative society incorporated as Producer Company can avail privileges of 365 days had been substituted instead of 90 days as provided to other companies”.
4 Additional Directors and Expert Directors Section 581P(6) Expert directors or an additional director may be co-opted but shall not exceed 1/5th of the total number of directors subject to articles of association.

Such expert directors shall not have the right to vote in the election of the Chairman but are eligible to be elected as a Chairman.

5 A Private Company Section 581C(5) On registration under Section 581 C (1), the Producer Company shall become a body corporate as if it is a private limited company to which the provisions contained in this Part apply.

It cannot become or deemed to become a public limited company.

6 Share Capital and transfer of the shares of Producer Company Section 581ZB

Section 581ZC

Section 581ZD

The Producer Company shall consist of equity shares only.

The active members may have special rights if provided in the Articles.

The shares shall not be transferrable.  The shares having special rights may be transferred with the approval of the Board to another active member.

Every member shall nominate a person within three months on becoming a member of the Company.  The nominee shall get all the benefits on the death of the member. If the nominee is not a producer, the Board shall direct the nominee to surrender the shares.

7 Alteration of Memorandum of association and Articles of Association Section 581H- MoA

Section 581I- AoA

By passing Special Resolution Memorandum or Articles of the company can be altered, but alteration of MoA or AoA shall not be inconsistent with Section 581B.

In case of alteration of Articles- It has to be proposed by not less than 2/3rd of the elected directors or by not less than  1/3rd of the Members and adopted by special resolution.

Copy of the altered MoA or AOA alongwith the copy of the special resolution has to be filed with the Registrar within 30days of adoption.

8 Annual General Meeting

Section- 581ZA

Section 581 S

Section- 581Y

  1. First AGM shall be conducted within 90 days from the date of incorporation.
  2. The Registrar may permit extension of the time for holding Annual General Meeting (not being the first annual general meeting) by a period not exceeding 3 months.
  3. The Producer Company shall in each year hold an Annual General Meeting and not more than 15 months shall elapse between the date of one Annual General Meeting to the next.
  4. The AGM shall be called by issuing at least 14 days notice.
  5. The proceedings of every AGM along with Directors’ Report, the audited Balance Sheet and Profit & Loss Account shall be filed with the Registrar within 60 days of AGM.

The shareholders shall have exclusive rights to be exercised in the Annual General Meeting such as:

  1. Approval of budget,
  2. Adoption of annual accounts,
  3. Issue of bonus shares,
  4. Approval of patronage bonus,
  5. Declaration of limited return and decision on the distribution of patronage,
  6. Specify the conditions and limits of loans that may be given by the Board to any director ; and
  7. Approval of any transaction of the nature as is to be reserved in the articles for approval by the Members.

Quorum:- 1/4th of the total number of members.

9 Meetings of the Board Quorum. Section 581V Board shall meet at least once in every three months and at least four such meetings shall be convened in every year.

The Chief Executive shall give notice for the board meeting at least 7 days in advance of the meeting.  Meeting can be called with shorter notice but the reasons thereof shall be recorded by the Board.

Quorum:- 1/3rd of the total strength of Directors subject to a minimum – 3

Penalty: If the Chief Executive fails to comply with the provisions of sending notice, he shall be punishable with a maximum fine of Rs. 1,000/-.

10 Chief Executive Section 581W Every producer company shall have a full time Chief Executive to be appointed by the Board amongst persons other than the members.
11 Company Secretary Section 581X Every Producer Company, having average annual turnover exceeding Rs. 5.00 crores in each of three consecutive financial years shall have a whole time Company Secretary.

Penalty for not appointing:

Company and every officer who is in default, shall be punishable with fine a maximum fine of Rs. 500/- for every day during which the default continues.

12 Internal Audit Section 581ZF Every Producer Company shall have internal audit of its accounts carried out in such intervals and in such manner as specified by its articles, by a Chartered Accountant.
13 General Reserve and other reserve Section 581ZI Every Producer Company shall maintain a general reserve in every year in addition to the Reserves as may be specified in the Articles.

If the 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

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