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Guidance on Farmer Producer Company

Ashish M. Shaji

| Updated: Feb 16, 2021 | Category: Producer Company Registration

Farmer Producer Company

Farmers have been subjected to face a lot of issues relating to not getting a fair price for the products they grow. Some of the reasons for the lower price include lack of knowledge about final markets, lack of value additions, etc. The government, through its initiatives, have tried to remove these barriers by the formation of APMCs, fixation of minimum prices, etc and with a view to make it more competitive, the government introduced Farmer Producer Company. 

What is a Farmer Producer Company?

This company was formed under the Companies Act, 1956, and is governed by the Company laws. Its area of operation covers the entire nation, and foreign trade is also possible. The major benefit of forming a Farmers Producer Company is its global competitiveness. A corporate structure has more reputation among people, and farmers can enjoy it through this Company.

This Company is preferred more as it provides an opportunity to share profits in the form of dividends with members. It acts as a bridge between the market and producers. 

What kind of activities can be done through a Farmer Producer Company?

This Company can be formed to do the following activities:

  • Procure inputs, equipment, and machines from local as well as global market and provide these to farmers at a competitive price.
  • Production and procurement of quality seeds in order to provide it to its members.
  • To disseminate the market information and provide information about the use of technology to farmers.
  • Facilitating finance to procure the inputs to farmers.
  • To purchase the farmers’ produce and sell it locally as well as abroad.
  • Branding, packing, and standardizing of the products of farmers to make it competitive in the global market.
  • Participation in the commodity market to get higher prices to farmers produce.
  • To impart education and to train farmers regarding the use of new technologies and skills.

It may be noted that this is an illustrative list only, and many other activities can be included in this, which can help farmers to develop themselves.

Incorporation of Farmer Producer Company

Any company in India is governed by the Companies Act of India. All other company except Producer Company is governed by the New Companies Act, 2013 whereas Producer Company is governed by the Old Companies Act, 1956 only. In this segment, we shall discuss the Incorporation requirements of this company.

Section 581C of the Companies Act provides conditions on the incorporation of the Producer Company-

  • Any 10 or more individuals that are natural persons and each of them must be producers or two or more producer institutions including co-operative societies also, or a combination of ten or more individuals and producer institutions can form a Company.
  • There has to be a minimum of 5 directors and a maximum of 15 Directors. If an interstate co-operative society is converted into a producer company, then such a company may have more than the prescribed limit of 15 directors for the period of one year from the date of conversion.
  • Every director should have a Director’s Identification Number (DIN). Directors are required to file DIR-03 with supporting documents such as ID proof, address proof, and Photographs.
  • The desired name of the Company should be checked for availability in the MCA (Ministry of Corporate Affairs) portal by applying via the Spice+ feature. The name will generally be approved in 2 to 5 days time if it doesn’t have any undesirable words according to the Company (Registration Offices and Fees) Rules, 2014. 
  • Every director must have Digital Signature Certificate to digitally sign the document of Memorandum and Articles of Association.
  • Once the documents are verified by the ROC, it shall approve the incorporation and grant certificate of incorporation.

Documents Required

When the name is approved, the following documents should be submitted to the MCA:

  • From MCA, drafting of Memorandum of Association. It is a document stating the primary and secondary objects of forming the company. Reference may be made to section 581B of the Companies Act 1956[1], which provides certain objectives of this Company.
  • Articles of Association should be drafted. It is like the by-law of the company.
  • Utility bill and NOC from the landlord should be obtained along with the rent agreement.
  • Director’s Consent should be filed in Form DIR-02 and DIR-08.

Capital Requirement of Farmer Producer Company

The capital requirement of this company is as follows-

  • Minimum authorized capital of this company should be 5 lakhs rupees;
  • Paid up capital is 1 lakh rupees;
  • Authorized capital refers to the maximum limit up to which capital can be raised according to the Memorandum of Association of the Company, whereas Paid capital is the actual amount received from the Company from its subscribers.

It may also be noted that this Company is also required to open a bank account within 180 days from the date of its incorporation and transfer the amount of paid up capital.

Advantages of Farmer Producer Company

The advantages are as follows:

Advantages of Farmer Producer Company
  • Limited Liability

The amount invested in the business could be lost, but the personal property of directors is safe and secure.

  • Economies of Scale

With this company, farmers can work collectively and thereby lower costs, reduce risk, and may even have access to better credit facilities.

  • Better Management

This company has a system of better management, which can be beneficial to farmers in the long run.

Government support to Farmer Producer Company

Through the initiation of the following measures, government casts its support to these companies:

  • Equity Grant Fund Scheme

Under this scheme, equity grant support is provided to eligible FPCs by the SFAC.

  • Credit Guarantee Fund Scheme

The primary objective of this scheme is to provide credit guarantee cover to eligible lending institutions to allow them to provide collateral free credit to this Company by lowering their lending risks.

  • Tax deductions

Tax deductions have been provided to encourage enabling environment for aggregation of farmers to FPOs.

Conclusion

The above mentioned Farmer Producer Company guidelines may be followed for better understanding however, it is suggested to take the assistance of a professional to incorporate this company. 

Read our article:Incorporation of Producer Company under Companies Act, 2013

Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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