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The Corporate Affairs Ministry (MCA) has operationalised a new Chapter on ‘producer companies’ enacted in the Company law last September, putting in place a self-contained legal framework for the farming community and certain co-operatives to attain the benefits of corporate structure, including better access to formal credit.
The new chapter operationalised now is largely on the lines of the provisions enshrined in the Companies Act, 1956, say experts. When the company law got replaced with a new 2013 version, the government had said that earlier provisions of producer companies specified in 1956 company law will continue till a framework is enacted. In September 2020, the government came with an amendment law that introduced a new chapter on ‘producer companies’. This chapter has been operationalised from Thursday.
A producer company can be formed by ten or more producers, two or more producer institutions or a combination of 10 or more producers and producer institutions. Such a company can only have equity capital, require a minimum of five directors and an authorised capital of ₹5 lakh.
Producer company
Producer company allows farmers’ co-ooperatives to function as a corporate entity under the Companies Act. Even businesses involved in marketing or promoting primary produce; financing producer activities or providing infrastructure to producers, whether in the form of electricity, water resources, irrigation techniques, consultation or land utilisation, can constitute a producer company.
MCA has also specified the areas and instruments in which the general reserves of a ‘producer company’ can be invested.
Advantanges unlocked
In India, only about 15 per cent of the farmers own over two acres of land. Therefore, majority of the farmers are unable to safely unlock the advantages that come with economies of scale. Forming a producer company can solve this, experts said.
Ashok Haldia, former Secretary of CA Institute, said that a producer company is essentially of farmers and agriculturists and has the features of a co-operative society and advantage of corporate entity with ease of compliance of a private limited company. Therefore there is a need for a self contained legal framework for incorporation to management and governance.
The new chapter inserted vide the amendment Act is on the similar lines of the one under the Companies Act,1956, he said.
Aseem chawla, Managing Partner, ASC Legal, said that the notified rules relates to bringing into motion the concept of producer company. “A producer company means a body corporate incorporated in activities connecting with farming/primary produce, including the produce of handloom; by products and cottage industry. This would assist several co-operative form of activities in evaluating whether they should corporatise in coming times”, he said.
Harish Kumar, Partner, L&L Partners, a law firm said, “Amidst the farmer’s protest, Ministry has notified the framework for producer companies under Companies Act 2013 which would help to regulate the Indian agrarian economy more effectively”.
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