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Any one of the following can get a producer company incorporated under the Act:
Any ten or more persons engaged in any activity connected with primary produce, or
Any two or more producer institutions or companies, or
A combination of ten or more individuals and producer institutions.
The registered producer company should be treated as a private limited company with the significant
difference that a minimum of two persons cannot get them registered.
These companies are with limited liabilities and limited only by share capital.
The liability of the members is limited to the unpaid amount of the shares held by them5.
As per the new circular, minimum paid-up authorized capital is of Rs. 5 lakh.
The maximum number of members can exceed 50.
It shall never become a public (or deemed public) limited company.
Members' equity cannot be publicly traded but be only transferred.
To offer a statutory and regulatory framework that creates the potential for producer-owned enterprises to
compete with other enterprises on a competitive footing.
To provide for the method of formation and registration of Producer Companies which, inter alia carries the
principles of mutual assistance and Co-operation within the more liberal regulatory framework afforded by
the company law with suitable adaptation.
To provide an opportunity (on a purely voluntary basis), to the existing large multi-state cooperative
institutions and societies, to voluntarily convert themselves into the new form of producer companies.
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Similarities
and
Differences
between Producer
Company
and
Cooperatives
Parameter
Core Philosophy
Cooperatives
Producer Company
- Competitive Advantage
- Equity
Multi-objective
Area of Operation
Restricted, discretionary
Formation
Membership
Non transferable
- Democratic
- Conventional
- Democratic
- Professional
Interface
government
Highly patronized
interference
Objectives
Share Transferability
Sharing of Profit
with
to
the
extent
of
Extent of Autonomy
Fully autonomous,
provisions of Act
Privileges
Equivalent to Coops
competitiveness
Patronage Bonus
Compatibility
with
trade and industry
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self
ruled
with
within
sense
of
To understand the governance of the company, it can be segregated in three major divisions as defined by the law (a
detailed description follows):
1. Members/shareholders: In a Producer Company, only a producer or producer institutions can acquire
membership. Producer Company is a membership based body and it can act only through its members. Thus, a
company is created by the members, and can also be wound-up by them. Members acts through heir General
Body.
2. Board of Directors: Elected by members and may act collectively only in meetings
3. Office bearers: Individual selected to look after the day-to-day affairs of the company, like CEO, accountant, go
down keeper etc. They are salaried people of the company.
1. Members
i. Defining Member:
A member is defined as a person or producer institution, whether incorporated or not, admitted as a member
of a Producer Company and who retains the qualifications necessary for continuance as such27. Being a
membership based entity, membership shall be voluntary and is available to all eligible members (criteria of
membership defined in the Articles of Association of a company) who can participate and avail the facilities or
services of the Producer Company.
Shares in a Company can be held in more than one name, which to be called Joint Membership. Under the
Companies Act, there is no ceiling on the number of persons holding shares jointly.
ii. Modes of Acquiring Membership
One can become a Member of a Company by any one of the following ways:
b. By agreeing in writing:
By application and allotment: two essential conditions have to be fulfilled by any person to become a member
of a Company other than by subscribing to its Memorandum of Association, they are:
Ann agreement in writing to become a member, and
entry in the register
By taking a transfer of shares: membership may be acquired from an existing member by purchase if all or
any of the shares of the company. A transfer deed duly executed by both the transferor and the transferee
together with the share certificate. However, the membership will be granted to transferee only after when
the transferor will give in writing in a prescribed form, and when the transfers registered in the books of the
company.
By transmission of shares: a person can become a shareholder in consequence or by reason of the death or
bankruptcy of a member or any other event constituting transmission. Here also, person will become member
only when he applies in writing requesting the company to make him a member and the company puts
his/her name on the register of members.
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c. estoppel:
by allowing his/her name to be in the Register of Members or otherwise holding himself out or
allowing to be out as a member.
iii. The Authority of Members on the Company:
Members act through the General Body, and the Body alone can:
a. Approve the Budget and adopt the Annual Accounts of the Company;
b. Approve the quantum of withheld price;
c. Approve the patronage bonus;
d. Authorize the issue of bonus shares;
e. Appoint an auditor;
f. Declare a dividend and decide on the distribution of patronage;
g. Amend the Memorandum of Association and Articles;
h. Specify the conditions and limits of loans that may be given by the Board to any Director; and
i. Approve or act on any other matters that are specifically reserved in the Articles for decision by the
Members.
iv. Rights of Members
When once a person becomes a member s/he is entitled to exercise all the rights of a member until s/he
ceases to be a member in accordance with the provisions of the Act. The rights of a Member are:
to transfer his shares;
to vote on resolutions at meetings of the Company;
*to requisition an extraordinary general meeting of the Company or to be a joint requisitions;
to receive notice of a general meeting;
to attend and speak in a general meeting;
2. Board Of Directors
Every Producer Company should have a Board of Directors of not less than five and not more than fifteen.
The Board may act only in areas not reserved to the General Body and may not exercise executive
functions. In general, the Board has authority and is responsible for formulating, supervising, and
monitoring of the performance of the producer Company in respect of the following matters33:
Determination of the dividend payable.
Determination of the quantum of withheld price and recommended patronage to be approved at General
meeting.
Admission of new members.
Pursue and formulate the organizational policy, objectives, establish long-term and annual objectives, and
approve corporate strategies and financial plans
Appointment of a CEO and other officers, as may be specified in the Articles.
Exercise superintendence, direction and control over CEO and other officers.
Sanction any loan or advance, in connection with the business activities of the Producer Company to any
member, not being a director or his relative.
Investment of the funds of the Company in the ordinary course of its business.
Acquisition or disposal of property of the company in its ordinary course of business.
Check that proper books of account is maintained.
Ensure that annual accounts are placed before the annual general meeting with the auditors report.
Take such measures or do such other acts as may be required in the discharge of its functions or exercise
of its powers.
The Board may make recommendations in the case of those matters reserved for decision of the General
Body.
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All the powers specified above shall be exercised by the Board only by means of a resolution passed at its
meeting and decision can be made or resolution adopted by circulation. Also to be noted that a director or a
group of directors who do not constitute the Board, shall not exercise any of the powers exercisable by it.
The Board of Directors shall be authorised to exercise the following powers on behalf of the Company
subject to the approval of the Members by a resolution adopted in a general meeting:
approval of budget and adoption of annual accounts of the Producer Company;
approval of patronage bonus;
issue of bonus shares;
Internal Audit
Every Producer Company shall have internal audit of its accounts carried out, at such interval and in such manner as
may be specified in articles, by a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the
Institute of Chartered Accountants Act, 1949.
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