Producer Company Registration:

A Producer Company was introduced in India with the Companies Act, 2013. In a legal context, it is defined under section 465(1) of Companies Act, 2013 with reading of section 581 of Companies Act, 1956. It gives persons engaged in activities related to producing (what has been grown or produced, particularly by farming) the opportunity to form a company. Such a company can only have equity capital, require a minimum of five directors and an authorized capital of INR 5 lakh. The procedure for forming a Producer company is similar to the one for forming a private limited company.

Overview for Formation of Producer Company Registration:

     ► Ten or more individuals (each of them being Producers); or by 

     ► Two or more Producer entities; or by 

     ► A combination of 10 or more person & Producer institutions 

Types of Producer Companies:

Marketing Businesses 

Marketing business technically refers to an establishment engaged with the marketing or promotion of primary produce or provision of educational services.

Production Businesses 

Such an entity deals with the production, procurement, or manufacturing of primary produce. 

Infrastructure Businesses 

These entities usually provide the infrastructure to producers in terms of water resources, electricity, land utilization, irrigation techniques, and so on. 

So, these are the types of producer companies in our country; the section below will talk about members’ obligation and their undertaking in the producer company. 

Technical Service Businesses

Such establishment primarily renders educational services and training to producers. It may also be engaged with activities related to research and development.

Financing Business 

As the name suggests, the financial business is the one that offers financial assistance to companies mentioned in this list. Their major stream of revenue comes from the interest imposed on the disbursed amount. 

Benefits of a Producer Company:

Limited Liability

All businesses can run the risk of not being able to repay their liabilities. It is a necessary evil. In this event, a sole proprietor (or individual producer) would be personally liable for all the debts of the business. The members of a producer company, on the other hand, have unlimited liability as the company is an entity in itself. Therefore, only the amount invested in the business would be lost; the personal property of the directors would be safe.

Better Management

Rather than a single farmer managing the entire business, work within a producer company can be divided between its directors. The entity is managed by the Board of Management, which has a tenure of five years. Also, a Producer company has a separate legal existence, which means that it isn’t affected by the death of any of its members.

Economies Of Scale

Only 15% of India’s farmers own over two acres of land. The majority of farmers are, therefore, unable to safely unlock the advantages that come with economies of scale. With a producer company, multiple farmers can work as a collective and lower costs, reduce risk and even get access to better credit facilities. This enables better planning and bargaining power with buyers.

Tax Benefits for the Producer company:

Agricultural income is exempted under Section 10(1) of the Income tax Act, 1961. However, exemption on the agricultural income varies based on the activity carried out by the producers or farmers.

There are no special tax benefits provided by the Income Tax Act to the farmer producer companies while there are certain tax exemptions and benefits that they can be avail with subject to the agricultural activity carried out by the company.

For example, currently, the agriculture income is 100% exempted. Therefore, income generated from the green tea leaves is tax-free but if those tea leaves are used for the purpose of manufacturing tea then 60% income shall be exempted and the other 40% is liable to be taxed.

Therefore it is cleared that the tax benefits and exemption depends upon the activity carried out by the company.

At times of limited return distribution and patronage bonus, the dividend tax at the applicable rates is required to be paid by the Producer Company while it will be tax-free in the hands of the members of the company.

During Bonus Shares’ allotment, members are free from any tax liability. However, provisions regarding the capital gain tax shall apply during the sale or redemption.

Documents Required for Registration:

TO BE SUBMITTED BY DIRECTORS:

► PAN Card or Passport (Foreign Nationals & NRIs)

► Voter’s ID/Passport/Driver’s License

► Latest Bank Statement/Telephone or Mobile Bill/Electricity or Gas Bill

► Passport-size Photograph

► Specimen signature (blank document with signature [directors only])

Note: Any one of the directors must self-attest the first three documents. In case of foreign nationals and NRIs, all the documents must be notarized (if currently in India or a non-Commonwealth country) or apostilled (if in a Commonwealth country).

REGISTERED OFFICE ADDRESS DOCUMENTS:

► Latest Bank Statement/Telephone or Mobile Bill/Electricity or Gas Bill

► Notarized Rental Agreement in English

► No-objection Certificate from property owner

► Scanned copy of Sale Deed/Property Deed in English (in case of owned property)

Note: Your registered office need not be a commercial space; it can be your residence, too.