Producer Companies in India: Legal Structure and Governance Challenges

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LeDroit Admin LeDroit Admin
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November 28, 2025

This article is written by Gowra Manogna, Mahatma Gandhi Law College, B.B.A. LL.B. (4th Year) during her internship at LeDroit India.

Abstract 

Producer companies were introduced as a hybrid institutional model to combine the democratic ethos of cooperative with the professional management structure of private companies. It was created under companies (amendment) act, 2002, producer companies aim is to empower the primary producers such as farmers, fishermen, and artisans by enabling collective production, processing, and marketing. It is said that agriculture is backbone of India. Nevertheless, small farmers and procedures face lot of issues in marketing their produce, retrieving resources, obtaining fair prices. To address these challenges the concept of producer company is introduced. This article examines the legal foundation of producer companies in India, analyses key governance issues, and producer companies’ rules, 2021. 

Key words 

Producer company, India, legal structure, Governance challenges, Companies act, 2013, objects of PC, Issues, Growth and Impact, Producer Companies Rules, 2021. 

Scope of article 

  1. Introduction 
  2. Producer companies and legal structure
  3. Governance challenges
  4. Producer company rules 2021 
  5. Conclusion
  6. Reference 

Introduction 

Producer companies are corporate entities that are formed by farmers and rural producers, bringing them together to undertake agricultural activities collectively and enhance their socio-economic conditions. Producer companies are introduced through the companies (Amendment) Act, 2002, which inserted part IXA into the companies act, 1956 (which is now covered under companies act, 2013). The Companies Act, 2013 is the framework for operating these companies. 

A producer company is essentially a company registered to benefit the primary producers, like farmers, fishermen, and diary owners. It was announced to address the limitations of traditional cooperatives, which often struggled with political interference, weak management, and restricted operational autonomy. 

In recent years, producer companies have gained renewed policy attention due to government schemes promoting farmer producer organizations (FPOs) as a means to strengthen agricultural value chains and improve smallholder competitiveness. 

However, despite the potential, many producer companies face persistent governance and operational challenges. Such as limited access to capital, low managerial capacity, compliance burdens, and weak member participation delay their ability to function as sustainable commercial entities. So, understanding their legal structure and the governance issues they encounter has become essential for policymakers and development practitioners.

Producer company and legal structure 

In companies act, 2013, a producer company is defined as the company that is formed and registered under the companies act, with the objective of production, harvesting, procurement, grading, pooling, handling, marketing, selling, and export of primary produce of its members or import of goods or services for their benefit. 

The companies act 2013 provide the requirements for the registration, incorporation, management, and winding up of the producer companies. The rules and regulations that need to be followed by the producer companies are also provided in the act. 

Objects of producer company, under the companies act, 2013 section 378B

Producer company shall relate to all or any of the following matters: – 

  1. Either by itself or through other institution the producer company may carry on any activities specified below:

production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import of goods or services for their benefit

  1. processing including preserving, drying, distilling, brewing, vinting, canning and packaging of produce of its members; 
  2. manufacture, sale or supply of machinery, equipment or consumables mainly to its members; 
  3. providing education on the mutual assistance principles to its members and others;
  4. rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its members; 
  5. generation, transmission and distribution of power, revitalisation of land and water resources, their use, conservation and communications relatable to primary produce; 
  6. insurance of producers or their primary produce; 
  7. promoting techniques of mutuality and mutual assistance;
  8. welfare measures or facilities for the benefit of Members as may be decided by the Board;
  9. any other activity, ancillary or incidental to any of the activities referred to in clauses (a) to (i) or other activities which may promote the principles of mutuality and mutual assistance amongst the Members in any other manner; 
  10. financing of procurement, processing, marketing or other activities specified in clauses (a) to (j) which include extending of credit facilities or any other financial services to its members.’’.

Every Producer Company shall deal primarily with the produce of its active Members for carrying out any of its objects specified in this section. (the companies act, 2013) 

Pre-incorporation of producer company 

Company can be formed by, 

  • with 10 or more individual (producers) members each of them should be a producer or; 
  • any two or more-producer institution, 
  • minimum paid up capital is required to incorporate a producer company. 
  • There should be minimum 5 directors and maximum 15 directors in a producer company. 
  • Company can never be converted into public company but it can be converted into a multi-state co-operative society.

Registration procedure of producer company in India  

Registering producer company is as similar as registering the private limited company. For the incorporation of the producer company there are following steps involved:

Step 1: obtain digital signature certificate (DSC)

Each proposed director along with self-attested copies of documents like PAN, Adhaar card, and other contact details. Must obtain the DSC certificate. DSC is required for signing the electronic documents submitted to the ministry of corporate affairs (MCA) during the registration process. 

Step 2: obtain director identification number (DIN) 

By submitting an application through MCA portal each director must obtain the Director Identification Number (DIN), it is known as the unique identification number that is required for a person to server as a director for a company.

Step 3: file the name 

In the name must receive the acceptance from the registrar of the companies (ROC). For the name filing it should comply with the guidelines under the companies act and should not be similar to an existing company name or trademark. The name is filed in the FORM-1A with the ROC of the respective state together with the fees prescribed in the provision for the incorporation of the company. 

Step 4: MOA and AOA 

Drafting necessary documents such as MOA (memorandum of association) and AOA (article of association) to outline the main objectives of the company with defining the internal governance and operational rules. 

Step 5: filing for required documents 

Other documents such as statutory declaration in form-1 which states the compliance of all and incidental matters concerning the formation of the companies together along with the affidavit signed by the subscribers of the proposed producer company. Bills such as NOC (no objection certificate), director’s consent, utility bill in form of electricity and water bill are also required. 

Step 6: issue of certificate of incorporation 

After the verification of application and the documents submitted, ROC issues the certificate of incorporation. With the certificate the producer company shall act as the private limited company. It also signifies that producer company shall not covert itself into public company. 

Types of producer company 

Producer companies can be categorized into various types in India based on their activities and objectives, with each type aiming to support and promote the interests of its members. Below are some common types of producer company in India. 

Agricultural producer companies 

It is the company formed by the farmers, agriculturalists, or producers who primarily focus on agricultural activities such as cultivation of crops, dairy farming, or poultry farming. These producer companies help farmers in pooling the resources, access the modern farming techniques, and products to be marketed effectively. 

The main purpose is to improve the income, increase the standard quality of products, and betterment in livelihoods of members. 

Horticultural producer companies 

The company is formed by the individuals who are engaged in the horticultural activities, such as growing fruits, vegetables, plants, and flowers. 

This company is formed to improve the quality of the products, for providing better marketing opportunities, increase the income. 

Handloom and handcraft producer companies

The company is formed to improve the livelihood of artisans and weavers or handloom production, handloom weavers by assisting them in accessing the better markets, and by obtaining the fair compensation for their craftsmanship. 

Multi-activity producer companies 

Individuals that engage in combination of activities of agricultural, horticultural, and allied activities form this company for providing a comprehensive support system for their members, and diversify income sources. 

Seri cultural producer company 

Individuals who are engaged in the activities of production of silk, such as silk farmers, silk reelers, or silk weavers. Seri cultural producer company is formed to improve the quality of the silk produced, to increase the availability of the silk, and for providing better marketing opportunity. 

Benefits of producer company 

  • Limited liability, the members of a producer company are liable only up to the value of the shares they hold, ensuring that their personal assets remain safeguarded.
  • Collective bargaining power, producer company enhances the bargaining power of the farmers by providing better market, negotiating in procuring the resources and help them selling at products at better prices. 
  •  Access to funding and credit, producer companies are provided with financial aid and bank loans as they are seen as credible borrowers, who are often eligible for loans, schemes, such as national bank for agriculture and rural development (NABARD)
  • Management, producer companies have a structural management system, it relives farmers from day-to-day burdens and expertise in filed can run the company which result in profitable returns and overall growth in company. 
  • Tax benefits, under the income tax act, 1961, producer companies have 

tax reductions and exemptions, especially when profits are reinvested to benefit members. This allows them to reinvest more of their earnings into infrastructure, technology, and member support, ensuring growth. 

  • Member centric, producer company prioritize their members mostly farmers, ensuring that profits are shared equally. Members play active role in decision making and have voting rights, ensuring that company is aligned with the objects and their needs. This structure promotes the transparency, cooperation, and fair distribution of benefits. 
  • Optimization of supply chain market, producer company creates the efficient supply chain market by eliminating intermediaries, this reduces the transaction costs, improve market access, and increase the profit shares. 

Governance issues and challenges 

  1. Limited resources: producer companies often struggle to attain required resources, which limits their capacity to invest in technology and infrastructure.
  2. Market risks: earning from agricultural products can be affected by the market conditions as they are uncertain. Sudden drop in price, demand variations, increase in competition, and unstable supply chain may reduce profit margins, making it difficult for the producer companies to maintain steady income and plan long term investments.
  3. Access to capital and financial resources: frequent challenges are faced by the producer companies in obtaining adequate capital and financial support. Limited availability of credit, investment opportunities, and working capital restricts their growth potential. As a result, it is difficult to expand their operations, upgrade infrastructure, purchase advance machinery or implement modern practices. This effects their competitiveness in the market and reduce their capacity to generate higher returns.
  4. Poor infrastructure and technology adoption: quality and saleability of agricultural products can be negatively impacted due to poor infrastructure, including insufficient storage and transport facilities. Limited tech knowledge can hinder productivity.
  5. Issues in internal management: internal governance, management, and leadership challenges can affect producer company. And expertise management is required for producer company but this might be lacking among traditional farmers.

Producer company act, 2021 

On 11th February 2021, ministry of corporate affairs announced Producer Companies Rules, 2021. These rules are applicable to all the individuals engaged in activities in connection with or relatable to any of the following produce: 

Agricultural produce: farmers arising from agriculture, produce from animal husbandry, products of floriculture and horticulture, forestry, forest products, framing plantation products, re-vegetation activities, bee raising. Other primary activities/ service products arising from farmers which promote interest of farmers/ consumers. 

Handicraft and handlooms produce: produce from individuals engaged in handicrafts, handlooms, and other cottage industries.

Others: 

  • products resulting from above activities, 
  • products resulting from all the ancillary activities, 
  • by products of above products,
  • all the activities intended for the increase of any of the above produce.

Procedure for alteration of the registered office from one state to another 

As per the provision of rule 4 of the Producer Companies Rules, 2021, if there is a change in producer company registered office to a different state, certain procedure must be followed- 

  • using Form No. INC.22, producer company should intimate the change in situation of its registered office. 
  • Application for alteration of memorandum of association should be filed in following manner- 
  • Filing of an application in Form No. INC.23
  • Additional documents to be submitted in Form No.INC 23- 
  • Copy of the memorandum of association containing all proposed alterations. 
  • Copy of minutes of the relevant general meeting, 
  • Copy of power of attorney or the board resolution or the executed vakalatnama,
  • List of creditors and debenture holders covering details as-
  • Name and address of all the creditors and debentures holders;
  • Nature and corresponding amount due to the creditors and debenture holders relating to debts; claims or liabilities. 
  • Duly authenticated copy of the published advertisement and corresponding notices issued. 
  • Copy of objections received, along with corresponding responses. 
  • Acknowledged copy of service of application copy (along with all the annexures) to the Registrar as well as the Chief Secretary of the State Government/ Union territory where the registered office is presently situated.
  • Certified copy of central government’s order approving the alteration of the memorandum should be filed in Form No. INC.28.  

Investment from and out of general reserves- 

As per provision of rule 5 of the Producer Companies Rules, 2021, this rule allows for the investments in various financial instruments and institutions. Following are the sanctioned options for investments:

  1. Fixed deposits, securities, units and bonds investments 

Investments in fixed deposits, securities, units, and bonds is issued by following entities: 

  • Central government 
  • State government 
  • Cooperative societies
  • Scheduled banks 
  1. Investments in designated banks: 
  • Co-operative bank;
  • State co-operative bank;
  • co-operative land development bank;
  • central co-operative bank; or
  • any other scheduled bank. 
  1. As specified under section 20 of the Indian trust act, 1882, investments are permitted in securities.
  2. Invest in the shares or securities of any of the following- 

Inter-state co-operative society; or

Any other co-operative society. 

  1. Producer companies can invest in either shares or securities or any assets of public financial institutions, as specified under section 2(27) of the companies act, 2013.

Conclusion 

Producer company empowers farmers and producers across India by providing opportunities. This is an excellent way for farmers to come together, improve their income, and provide better market access to their products. This is dynamic and inclusive approach to rural development and agricultural empowerment. Producer company involves diverse type catering to specific agricultural and rural activities, creating a positive impact in livelihood of farmers and artisans, entrepreneurs. 

 It is a structured approach for pooling resources, enhance market access, and obtaining financial support. Within the framework of the companies act, 2013, producer company enjoy the benefits of separate legal entity, limited liability, and government schemes, and professional management. 

Reference 

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