FAQs – FARMERS PRODUCER COMPANY
A farmer producer company is a type of company established under the Companies Act in India with the objective of benefiting farmers, primary producers, and related stakeholders. These companies are formed by primary producers like farmers, milk producers, fishermen, weavers, rural artisans, and craftsmen. The main purpose of a producer company is to promote the welfare of its members (producers) by improving their incomes, reducing costs, and ensuring better returns on their produce.
Q.1 Why are farmer Producer Company needed?
- Members gain better access to larger markets and buyers, which might be difficult to achieve individually.
- Producer companies can set up processing units to add value to the raw produce, leading to higher returns.
- Centralized processing helps maintain consistent quality, enhancing the product’s marketability.
- Bulk buying of inputs and collective selling of produce reduces costs and increases profit margins.
- Members can share resources such as machinery, technology, and infrastructure, reducing individual investment costs.
- Members can benefit from access to modern agricultural techniques, technologies, and best practices.
- Producer companies often provide training and education to improve the skills and knowledge of their members.
- Producer companies can avail themselves of loans and financial support more easily compared to individual producers.
- They can benefit from various government schemes, grants, and subsidies aimed at supporting collective farming and production.
- A producer company can create a brand for its produce, enhancing recognition and trust among consumers.
- It can implement effective marketing strategies to reach a wider audience and improve sales.
- Members have limited liability, meaning their personal assets are protected in case of the company’s debts and liabilities.
- The company is a separate legal entity, allowing it to own property, incur debt, and enter into contracts independently.
Q.2 What are the main activities of a producer companies?
- Production, harvesting, procurement, grading, pooling, handling, marketing, selling, and exporting primary produce of members.
- Processing of the produce of its members.
- Manufacture, sale, or supply of machinery, equipment, or consumables mainly to its members.
- Providing education on mutual assistance principles to its members and others.
- Providing technical services, consultancy services, training, research, and development, and all other activities for the promotion of the interests of its members.
- Generation, transmission, and distribution of power, revitalization of land and water resources, their use, conservation and communications relatable to primary produce.
- Insurance of producers or their primary produce.
Q.3 What are the minimum number of persons required to register a producer companies?
To form a producer company, you need to meet one of the following membership criteria:
- At least ten or more individual producers (primary producers).
- At least two or more producer institutions (institutions or organizations of producers).
- A combination of at least ten or more individuals and producer institutions.
Q.4 How are the liabilities of members in a producer company limited?
- Limited by Shares: the liability of each member is limited to the amount unpaid on the shares they hold. If a member has fully paid for their shares, they have no further financial obligation towards the company’s debts or liabilities.
- Limited by Guarantee: members agree to contribute a predetermined amount towards the company’s debts in case of winding up. This amount is usually specified in the company’s articles of association.
Q.5 Can a producer company become a public company?
A producer company cannot directly convert into a public company because it is specifically designed to serve the interests of primary producers. The legal framework governing producer companies is distinct from that of public companies.
Q.6 What are the funding and support options available for farmer producer company?
Farmer Producer Companies (FPCs) in India have access to various funding and support options from the government, financial institutions, and other organizations. Here are some key funding and support options available for FPCs:
1. Government Schemes and Support
- Provided by the Small Farmers’ Agribusiness Consortium (SFAC), this scheme offers matching equity grants up to ₹10 lakhs to enhance the equity base of FPCs.
- Also managed by SFAC, this scheme provides a credit guarantee cover to bank lending to FPCs, thus reducing the risk for financial institutions and encouraging them to extend credit to FPCs.
- Managed by NABARD, this fund supports the creation of rural infrastructure, which can be utilized by FPCs for developing storage, processing units, and other necessary infrastructure.
- Under RKVY, FPCs can receive financial support for projects aimed at enhancing agricultural productivity and farmer incomes.
2. Financial Institutions
- It offers various financial products and schemes specifically for FPCs, including working capital loans, term loans, and assistance for capacity building and training.
- Many commercial banks and Non-Banking Financial Companies (NBFCs) provide loans to FPCs for working capital, infrastructure development, and other business needs.
3. International and Private Sector Support
- Various agri-business incubators offer seed funding, mentorship, and business development support to FPCs. Examples include the Agri-Business Incubator (ABI) at ICRISAT and others supported by the Department of Science and Technology (DST).
- Impact investors and venture capital funds focused on agribusiness and rural development provide funding to FPCs for scaling their operations and adopting new technologies.
4. Cooperative and Self-Help Group (SHG) Support
NCDC offers financial assistance to cooperative societies, which can include FPCs, for infrastructure development, working capital, and capacity building.
SHGs and their federations often provide microfinance and support services to FPCs, particularly those formed by small and marginal farmers.
5. Grants and Subsidies
Various state governments offer specific schemes, grants, and subsidies for FPCs, tailored to the needs and agricultural practices of the region.
Many corporations have CSR initiatives focused on rural development and agriculture, providing grants, training, and infrastructure support to FPCs.
6. Technical and Capacity Building Support
Organizations like NABARD, SFAC, and various NGOs conduct training programs and workshops to build the capacity of FPCs in areas like governance, financial management, and market linkages.
Professional consultancy services are available to assist FPCs in business planning, market analysis, and adopting best practices in farming and agribusiness.
Q.7 Can producer company engage in international trade?
Yes, a Producer Company can engage in international trade. The Indian Companies Act, 2013, allows producer companies to carry out a variety of activities, including export of primary produce and import of goods or services for the benefit of its members.
Q.8 What are the typical governance structures in an FPO?
The governance structure of a Farmer Producer Organization (FPO), such as a Farmer Producer Company (FPC), is designed to ensure efficient management, accountability, and representation of its farmer members. Here are the typical components of the governance structure in an FPO:
- General Body
The General Body is the supreme decision-making body that approves key policies, annual budgets, and major business plans. It elects the Board of Directors and approves significant changes to the organization’s constitution and governance.
- Board of Directors
The Board of Directors is responsible for setting strategic direction, making policy decisions, overseeing the management, and ensuring that the organization operates in accordance with its objectives and regulatory requirements. They also appoint the CEO or managing director.
- Executive Committee
The Executive Committee handles day-to-day operations and implements the decisions made by the Board of Directors. They also supervise the administrative functions and ensure compliance with legal and regulatory requirements.
- Chief Executive Officer (CEO) or Managing Director
The CEO or Managing Director is responsible for the overall management and administration of the FPO, executing the board’s decisions, and managing staff. They report to the Board of Directors and ensure that the organization’s objectives are met efficiently.
- Functional Committees
These committees focus on specific areas such as finance, procurement, marketing, and technical services. They provide recommendations and support to the Board and Executive Committee on their respective domains.
- Advisory Board
The Advisory Board provides strategic advice, technical expertise, and guidance to the Board of Directors and management team. They help in long-term planning and addressing complex challenges.
- Audit Committee
Members appointed by the Board of Directors, often including external auditors. The Audit Committee oversees the financial reporting process, internal controls, and audit activities. They ensure transparency and accountability in financial management.
- Annual General Meeting (AGM)
The AGM is held once a year to review the FPO’s performance, approve financial statements, elect board members, and discuss and approve major decisions and policies.
Q.9 Can FPOs provide financial services to their members?
Yes, Farmer Producer Organizations (FPOs) can provide certain financial services to their members, though there are some restrictions and regulatory requirements they must adhere to. The extent and type of financial services that an FPO can provide often depend on its legal structure and the regulatory framework within which it operates.
Q.10 Is members’ equity in a producer company publicly traded?
No, members’ equity in a Producer Company is not publicly traded. Here are some key points to understand this aspect:
- A Producer Company is typically formed by primary producers (farmers, artisans, etc.) who are its members. The equity shares are owned by these members.
- The shares of a Producer Company are not freely transferable like those of a public company. Transfers are often restricted to existing members or to individuals approved by the Board of Directors.
- Producer Companies are not listed on stock exchanges, so their shares cannot be bought or sold on public markets.
- Share transfers usually occur internally among members or to new members who meet the criteria set by the company’s articles of association.
Q.11 what are the minimum director requirement to form a producer company?
- Minimum Number of Directors: A producer company must have at least five directors on its board.
- Maximum Number of Directors: A producer company can have up to fifteen directors. If more than fifteen directors are needed, special approval from the government is required.
Q.12 what are the requirement of appointing a company secretary in producer company?
If the average annual turnover exceeds ₹5 crores in each of the three consecutive financial years, the producer company must appoint a full-time Company Secretary. The Company Secretary must be a member of the Institute of Company Secretaries of India (ICSI).
Q.13 what are the minimum capital required to form a producer company?
There is no specific minimum authorized capital required for forming a producer company under the Companies Act, 2013. However, typically a minimum authorized capital of ₹5,00,000 (Rupees Five Lakhs) is recommended to ensure smooth operations and compliance.
To learn more about Farmer Producer Companies and explore how they can benefit your farming community, please visit our website Company Suggestion – Legal advice for startups and Consulting Services resources provide comprehensive information on forming an FPC, governance structures, funding options, and best practices for successful operation. Join us in empowering Business compliances.
