Producer Company Concept

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The new concept of producer companies

TILL RECENTLY, the Companies Act, 1956 (the Act), recognized only three types of companies, namely, companies limited by shares (sub-divided into public limited and private limited companies), companies limited by guarantees and unlimited companies. With the coming into force on February 6 of the Companies (Amendment) Act 2002, (1 of 2003), a fourth category, `producer companies,' finds a place in the Act.

For this, a new Part IXA, divided into 12 chapters, has been included in the Act, comprising 46 sections, interestingly numbered as 581A to 581Z and 581ZA to 581ZT. However, the section that defines the various types of companies that can be incorporated under the Act remains unaltered.

The new concept of producer companies is based on the recommendations of an expert committee led by noted economist, Y. K. Alagh. The committee was asked (a) to frame a legislation that would enable incorporation of cooperatives as companies and conversion of existing cooperatives into companies and (b) to ensure that the proposed legislation accommodated the unique elements of cooperative business with a regulatory framework similar to that of companies.

The new type is termed as `producer company', to indicate that only certain categories of persons can participate in the ownership of such companies. The members have necessarily to be `primary producers,' that is, persons engaged in an activity connected with, or related to, primary produce.

What is primary produce? In terms of the Act it is a produce of farmers arising from agriculture including animal husbandry, horticulture, floriculture, pisciculture, viticulture, forestry, forest products, re-vegetation, bee raising and farming plantation products: produce of persons engaged in handloom, handicraft and other cottage industries: by - products of such products; and products arising out of ancillary industries.

The 46 new sections respectively deal with incorporation of producer companies: their management; general meetings; share capital and members rights; finance, accounts and audit; loan to members and investments; penalties; amalgamation, merger or division; resolution of disputes; and reconversion of producer company to inter-State cooperative society. A few salient features are now briefly described.

Formation

Any ten or more individuals, each of them being a producer, that is, any person engaged in any activity connected with primary produce, any two or more producer institutions, that is, producer companies or any other institution having only producers or producer companies as its members or a combination of ten or more individuals and producer institutions, can get a producer company incorporated under the Act.
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